Investors involved in U.S. equities exhibit an immensely nonchalant attitude towards the potential extent to which the ongoing trade conflict will impact corporate profits. There is a noticeable degree of alarm in economic indicators with respect to the valuation of shares. Plans for corporate capital investments in American businesses have adopted a negative stance, an occurrence we’ve seen only four times this century.
The index for consumer sentiment from the University of Michigan has plummeted to its lowest in several decades. Furthermore, as per recent data, a majority, that is two thirds, of households in America predict that the country’s unemployment situation may deteriorate over the next year.
Notably, during the runtime of these tariffs, both corporate and household sentiment have undeniably suffered significant blows. It appears chipper optimism from prior times may not restore itself as easily as anticipated.
Despite the ominous shadow of the trade war looming over the financial markets, the S&P 500 Index is not far off from its all-time high recorded in February. The index sits at a comfortable spot, only about 5% shy of its February pinnacle, and nearly parallel to the median forecast predicted by financial strategists for the year-end.
Optimistically, the market anticipates a solid 10% growth in earnings per share (EPS) for the current year, with a further 14% jump in the coming year. These expectations compare to an average compound annual growth rate hovering around 6.7% for the past forty to fifty years.
However, these lofty aspirations might be overly ambitious. Andrew Stein, a well-known activist investor, remarked on a pertinent concern. Stein pointed out that due to past discrepancies, it’s not always reliable to rely on projections from sell-side analysts, as their viewpoint might be skewed.
With the warp of uncertainty encircling the economic landscape in the U.S., some investors instead choose to venture into markets with a lower exposure to American risks. India and Australia, for example, are favored as safer playing fields.
The consensus on Japanese shares seems to be neutrality. Market participants perceive these stocks as closely aligned to their fair value. Their take on Chinese shares mirrors this view.
China’s outlook, however, is limited by its modest domestic consumption levels, causing some constraint in optimism. Nevertheless, the perspective remains one of neutrality, similar to Japan.