Note Précis July 10,2019: Valuation versus Meeting Consensus as Market Driver – Investing requires a broader context than momentum, whether at the country or company level. Capital market valuation is elevated. Consensus growth was cut and low for example for S&P 500 earnings and declining for global economic growth. Meeting consensus as market sufficing has likely also reflected also, momentum trading driven by ultrafast data ingestion. Unlike appearances so far in this cycle, valuation and delivery of growth being seen as more secondary to the meeting of consensus is likely to become less lopsided.
For these reasons, we peruse recent semi-annual commentaries such as from the Federal Reserve, the IMF and the Bank for International Settlements. Over a decade ofU.S. quantitative ease does not seem delivering overall stronger growth compared to Australia and Canada without it. Neither has more extreme quantitative ease such in Japan and Europe been demonstrably more efficacious than that in the U.S. Unlike market behavior, regulators cannot vacillate daily on rate policy but currently seem uneasy and circumspect on quantitative ease building collateral risk. One such is via leveraged lending in portfolios, public and corporate finance structure. Crosscurrents appear in Federal Reserve July 2019 semiannual testimony. In emerging and advanced economies alike, higher political interlocution on monetary policy appears while central bank leadership itself is in flux. It can be seen with countries as disparate as Argentina, Mexico, the United States, Italy, Turkey and India being instances.
It means that by markets and authorities alike, dislocations may only be acknowledged after the fact. Additionally, global politics and trade remain tense. Many issues make diversification and reserves all the more important in portfolios. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.