July 8, 2018
Weekly Market Outlook
By Keith Schneider
US equities put in an excellent performance with all key US benchmarks up nicely with the shortened week. The Dow Industrials (INDU) ended up +1% while both growth and small cap stocks led by NASDAQ 100 (QQQ) the Russell 2000 (IWM) were each up over +2.5 % for the week.
The huge question is whether the big rally in global equites this week was out of step with the looming trade war? Maybe. To borrow a quote from John Maynard Keynes “The market can remain irrational longer than you can remain solvent” which sheds appropriate light on the matter. If indeed the trade war breaks out and escalates, corporate earnings and global equities will certainly get hit.
Currently market valuations are already very rich (forward looking PE just under 17 in the US). The other key thing to note is that the companies that are expected to drive the majority of future growth are exactly the ones that rely most on global trade and are highly sensitive to tariffs. Hence, the only conclusion is either the market is currently irrational, or the trade war won’t happen.
Considering the markets propensity for irrational exuberance or temporary insanity, the ability to read the tape and stay flexible is even more critical with the Geo-Political world order shifting rapidly.