YWR: Killer Charts

Disclosure: These are Personal Views, not investment recommendations. For investment advice please seek a professional.

We’ll start with a quick health check of the market and then get into some charts from a presentation I attended by Gerard Minack.

Sentiment has improved in surveys, but in terms of fund flows nothing is happening.

S&P 500 earnings revisions are back to trending down slightly (although nothing dramatic), but still implying 10% EPS growth for 2024 over 2023.

The S&P 500 looks slightly extended relative to the movement in the 12 month forward EPS, but again hard to call it extreme. As we move through the year that black line should rise further to $240 if estimates (chart above) aren’t revised down.

Now some good perspective charts from Gerard Minack.

I’ve picked out a few highlight charts, but there is a link at the end of the post to the entire presentation (over 250 slides on economics, asset allocation, bonds, China, currencies, pretty much everything).

It’s best you make yourself a coffee and sit down with the whole thing yourself.

The S&P 500 continues to drive global equity returns.

And those US equity returns have been driven by the amazing EPS growth of the core big-cap tech stocks. That future big cap tech EPS trend (blue line) is key to global asset allocation.

Gerard thinks we could be experiencing peak US EPS outperformance and sees a similarity to the outperformance of European earnings from 2003- 2007. During that period the European sector mix was better suited to catch the trends of the time with higher allocations to commodities and industrials (German) with exposure to emerging markets.

Gerard’s charts indicate if we are taking a 10 year forward view, it’s time to allocate more to Europe and EM.

The strong US 10 year average annual returns we’ve experienced like clockwork were sown from the depressed valuations of the post GFC. Investors in US equities today might be catching peak relative valuations applied to a cyclical earnings outperformance.

It’s time to look forwards, not backwards.