BUSY WORK
Hello and thanks for reading this week’s No Straight Lines Investments blog, I appreciate your time and attention.
I’m sure you have all had those dreams where you are attempting to run, but regardless of how much effort you exert, you just can’t seem to get moving.
On the surface, the equity market appears to be experiencing some form of this phenomena, resulting in “busy work” i.e. no visible return for all of the effort.
The S&P is more or less unchanged over the past month.
Please consider this an observation, not a complaint.
In the context of heightened uncertainty spawned by geopolitics, trade policy and deficit spending, eking out a 2% gain on the year is a pretty great outcome.
One of the key questions for equity investors: will hard data weaken to match the soft surveys, or will sentiment rebound to catch up with fundamentals? This divergence is front and center for stock operators right now.
Chart from Jan Hatzius, GS
This chart from GS does a good job capturing this tug-of-war, it would appear to be inconclusive, although the magnitude of the “catch up” in the soft data is multiples larger than the slowdown in the hard data.
And yet…..GS Q2 GDP tracking estimate is 4.1%, and full year GDP is 1.8%.
No question some of the GDP strength is discounted by the apparent pull-forward created by the tariff deadlines.
Notwithstanding this one-time tailwind, it should help Q2 earnings deliver, and we know that ultimately it is earnings that drive stock prices.
Notable that the bogey for Q2 earnings growth is 5%, which certainly appears to be beatable, and a lower bar than Q1, which was crushed with 12% actual growth.
Paying 22x current year estimates for the S&P is another headwind to broader investor participation in the current rally.
This ranks in the 83rd %ile of earnings multiples over the past decade.
And yet……Bespoke Investments shared a superb slide of average 10-year returns on the S&P 500 going back to 1871, based on deciles of the starting P/E:
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Portfolio names in #energy, #utilities, #space, and #retail are featured in charts of the week.
My aim is to provide my subscribers with solid risk/reward ideas that would be additive to personal portfolio returns. The average unweighted return for the stocks I have written up and still own or that I have sold is >44% total return.
If this is it, thanks for reading and good luck with your investments this week.
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