HI_HorizonNotesheader_7292019

Solid Earnings, Economic Data Push Markets Higher

BIG NUMBER
10.1
(Click the chart below to view and download)

sidebar - RAWHAT IT IS
The current difference in the price-to-earnings ratios of the S&P 500 Growth Index (25.7x) and the S&P 500 Value Index (15.6x).

MARKET/POLICY NOTES
Second quarter GDP came in at 2.1%, down from the first quarter but still solidly positive given all the global crosswinds (e.g. trade and Brexit). Trade talks with China are due to restart this week with lowered expectations on both sides.

HOW MARKETS REACTED
Earnings continued to roll in last week and have generally been better than expected. U.S. equity markets reacted positively, moving to fresh records for both the S&P 500 and the Nasdaq. Yields on the 2-year Treasury were up two basis points.

WHAT THIS MEANS
Growth stocks continue to command a valuation premium relative to value, a trend that began after the financial crisis and has accelerated since. Early signs suggest this may be changing. A reversal would provide interesting opportunities given the current relative pricing.

WHAT TO WATCH
The Federal Reserve is expected to cut the Fed Funds Rate by 25 basis points this week, the first cut since 2008. U.S. jobs numbers are out on Friday, and the U.S., European Union, and China will all provide updates on their respective Purchasing Managers’ Indexes (PMIs).

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