After spending much of the week rangebound,
equity markets ended on a strong this week pushing the S&P 500 to a new
all-time high (3,120) and on track to exceed our recently raised target of
3,185 (+65). As markets push to 'new highs,' it is a natural inclination
to want to 'fade' this move. But we are in the final 8 weeks of the
calendar year and as such, different dynamics are at play:
First...as we pointed out a few weeks ago, markets that show strength thru Nov 1
YTD, the rally into YE tends to be stronger. History says 3,216.
Another +100 points from here and very tradeable.
More importantly...The cadence of incoming economic data has improved. It seems that 3 regions are set to show renewed cyclical strength in 2020--> US, China and Japan. The rationale from Goldman Sachs and JPMorgan economists are listed below.
- US sees continued strong consumer + housing = capex strength in 2020
- Japan set to see PM Abe push fiscal stimulus 2020 (=better GDP)
- China is bottoming
The above 3 economies are > 50% of global GDP and as we have said multiple times, the US and China are the only 2 real drivers of the global economy and both look stronger in 2020.
If industrial cycle is bottoming, 2020 S&P 500 EPS growth could be 18% or better...The US Exports PMI moved above 50 and this is also reinforcing the idea 2020 economy > 2019 economy. In fact, over the last 25 years, when the ISM export moves from a negative value to >50, this has marked inflection points in EPS growth. The average EPS growth is 18%.
BofA Merrill Survey fund manager survey shows record "flip" in growth outlook--MAJOR SIGNAL Notably, we have also seen fund manager growth outlook (for GDP) improve in the past month. The survey saw a record move from -37 to +6.
- Since 1994, there are only 3 precedent times the survey jumped from -35 (or worse) to a positive value (below).
- the 4 instances are '98, '02 and '09. This "flip" has taken place right in front of a massive upleg in equities.
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