US equities continue to remain at a significant P/E premium to the rest of the world despite no longer having an earnings growth advantage. 2019 EPS growth estimates for the S&P500 are now at 4%, down from 12% 6 months ago. Technical indicators look stretched once again, and we’re back at levels where selling pressure will build for most major US indices.
High PE growth names still require considerable investor caution, whereas, yield sensitive areas are likely to remain well supported, even if market volatility pickups again in the coming weeks or months.
At a global level, value in China, India & Brazil, along with ongoing liquidity from Japan, will add some level of support. China has been aggressively easing monetary policy and cutting taxes for more than six months, as an offset to their crackdown on excessive credit growth last year and headwinds from US tariffs. We think there could be more stimulus from China forthcoming.
Emerging market growth goes from +3% in 2018 to +7% in 2019, in contrast S&P500 EPS growth drops from +23% in 2018 to just +4% in 2019.
ASX 200 headline PE has reverted towards its long run average of 14x earnings, the Australian equity markets are likely to run into selling pressure with the XJO at 6100 points. This is due to limited earnings growth and the extended rally in resources.
In today’s ASX Top 50 Market Update Video Report, we analyse the ASX top 50 stocks and identify the names we’re currently holding in the model and those that are likely to underperform following weak earnings announcements.