Commentary: Paul Ebeling on Wall Street


Am seeing earnings revival boosting stock rally in Y 2020

But 1st, this is what happened last week:

The Federal Open Market Committee (FOMC) has held steady and is not going to raise rates in Y 2020. Chairman Powell is also open to bond purchases.

The Consumer Price Index (CPI) has become hotter, but the Fed continues to lament “muted inflation.” 

The PHLX Semiconductor Sector (SOX) made a breakout and the other indices were poised to follow.

Chairman Powell will address the potential repurchase agreement crisis over the next several days. He has also stated that he is open to more QE, and all that goes with it.

Lots of positives spurred the stock market onward Thursday and much of the rest of the market stampeded to follow SOX’s Wednesday breakout to an all-time high.

The S&P 500 and the NAS Comp certainly achieved new highs while the S&P 400 and Russell 2000 (RUTX) rallied to a higher recovery and achieved their own version of success. The DJIA, well, it hit a new all-time high as well — intra-day.

The gains were not huge on the indices as that was left to the individual stocks and groups that found out that a major hobble was removed.

Now for Y 2020:

Global earnings growth will return in Y 2020, boosting stocks, and investor attention will shift to fiscal policy as central banks run out of tools to stimulate the economy.

Stocks should improve next year given expected global earnings growth of about 8% as the economy recovers, favoring shares from Europe and Japan, which tend to have lower valuations, to those from the US.

There are good reasons on the monetary side and even on the more technical side for the recovery, such as the potential for money inflows.

American stocks have had a terrific year, with the S&P 500 Index up 26.4% YTD, compared with a 16% gainer in the MSCI World ex-US Index, as the US economy held steady and the Fed cut rates 3X.

The S&P 500 closed at a record high Friday; +0.23 at 3168.80

Our preference for international stocks aligns with that of Morgan Stanley (NYSE:MS) economists who said in a note Thursday that the fading effects of US policy support will help shares in the rest of the world bounce North.

Other investment views:

  • Treasury inflation protected securities are among the cheapest assets in bond markets as investors remain overly pessimistic about inflation
  • Positive on local-currency emerging-market duration as high real rates allow central banks to cut borrowing costs
  • Global economy likely to avoid a recession
  • JPY looks cheap among G10 currencies and remains a good hedge in risk-off scenarios
  • Bank stocks look attractive on valuations and could do well if there is a resurgence in inflation

Remember, always take what the market gives.

Have a terrific week.