The markets have continued their “sugar rush” run after their summer doldrums. We have seen a number of analysts and professionals coming out and saying the markets are overvalued at these levels. But, while we may be trading a bit rich on valuation, we also see some very positive economic trends in the works:
Europe is in full-blown growth mode – We are seeing strength across the board in Europe. For the past six or seven years, it’s been Germany pulling the rest of the EU along. But now, Ireland, the UK and Spain have joined the parade. Europe is accelerating quickly after being in borderline recession for many years.
Profit acceleration – We typically experience a peak in profit margins and then a slowing in the economy. However, this cycle has been atypical. Profit margins peaked, softened and have now reaccelerated. Profit margin expansion is key in this cycle.
Earnings Reports - The primary driver for our most recent move has been the pace at which earnings have been growing. Most analysts expected good earnings. But, corporate earnings in the third quarter have been much stronger than most expected.
The global economies are lifting right now and earnings have been strong. With low interest rates around the world, this economic growth cycle has legs. The flip side of the coin is that the FED will continue to raise interest rates into the future. Eventually, higher rates will slow our growth. But, for now, we are enjoying this economic expansion.
On behalf of the entire Delta Team, we wish you and your loved ones joy and peace this sacred holiday season.
The economy stalled a bit in the third quarter as the stream of hurricanes stemmed consumer spending for the three-month period. The markets have shrugged off this lull and pushed higher with the expectations that the economy would soon recover. There are several global trends we are following at this point:
Do we get a “game-changing” tax cut? – It appears that we will get the tax cut that most investors are expecting. The good news – It makes the US businesses more competitive on a global scale. The bad news – It’s already priced into the equity markets and, if it doesn’t get passed, we would probably experience a hefty correction.
Will earnings continue to impress? – If recent earnings are any indication, the answer is yes. In particular, technology earnings have been off the charts. In fact, Amazon, Alphabet and Microsoft added $80 billion (yes, that’s a “B”) in one day after their recent earnings announcement. The rest of the S&P has also seen strong improvement. But, the bigger question is whether or not the earnings can continue higher in the near future.
The global economies are lifting right now and earnings have been strong. With low interest rates around the world, this economic growth cycle has legs. This is a very positive scenario and one we think will push markets higher for the long term. For now, we are focused on trying to find the best sectors to invest in for this particular economy.