The forward price-to-equity (P/E) ratio for the S&P 500 index was about 19.5 late last week, passing the 19% mark for the first time in nearly 20 years. This marks a 17% year-over-year gain... should we be concerned for what that indicates about earnings? One area we are concerned about is manufacturing—we saw some signs of hope in January after a sustained downturn, but the trend didn't last long. Did our momentum take a trip to Germany? Coronavirus concerns are still weighing heavily on the markets as new infection centers outside of China, like Italy and South Korea, emerge. Chinese markets have remained resilient, however, in a demonstration of market (and investor) irrationality. Those investors fleeing to safety though have sent Treasury yields plummeting, and a conflicting picture to emerge from the equity and fixed income markets. Finally, while precious metals (including the ever-indicative gold) may be on the rise, commodities as a whole are suffering. Will it take good news on trade to recapture some Nixon-era magic?
1. Perhaps the markets are due for an ordinary pullback...
Source: WSJ Daily Shot, from 2/24/20
2. Will the turnaround in the U.S. be short lived?
Source: WSJ Daily Shot, from 2/24/20
3. Some good news... German manufacturing is headed back towards growth (50 or higher).
Source: WSJ Daily Shot, from 2/24/20
4. Hopes for an early containment of the coronavirus were dashed over the weekend with many new cases reported outside China. Italy has quarantined several villages and about 50,000 people...
Source: WSJ Daily Shot, from 2/24/20
5. An example of how markets can remain irrational far longer than most investors can remain solvent...
Source: WSJ Daily Shot, from 2/24/20
6. Is the yield curve telling us the coronavirus is a big deal?
Source: The Chart Store, as of 2/21/20
7. Much of the curve is at record low yields & record high prices, all while the S&P 500 is just 1.25% off it's record highs. Which market is "right?"
Source: The Chart Store, as of 2/21/20
8. So far, the junk bond market is saying "both are right..."
Source: The Chart Store, as of 2/21/20
9. Is it a coincidence that President Nixon visited China in 1972 and started China down the path to opening up trade with the rest of the world?
Source: The Chart Store, as of 2/21/20
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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.