David Hernandez, CFA
Senior Research Analyst, Non-U.S. Equities
Through the first half of the year, most U.S. and non-U.S. equity indices have produced double-digit returns. For example, the S&P 500 and MSCI ACWI ex U.S. indices are up 18.5% and 13.6%, respectively. On the surface, these large returns appear to indicate a healthy equity market. However, when we dig deeper, we find that multiple expansion — rather than fundamentals — has been the key driver of year-to-date returns. In fact, earnings revisions have been negative across the globe as analysts have downgraded their 2019 EPS estimates.
Why have equity returns been so strong during a tepid earnings environment? First, we think markets were likely oversold in 2018, leading to a bounceback this year. Second, central banks throughout the world have become more accommodative, including possible rate cuts in the U.S. and tax cuts in China. This shift in monetary policy has boosted equity investor optimism. Looking to the rest of the year, we have a cautious view on equity returns given the poor earnings momentum. Additionally, macro events like the Brexit and U.S.-China trade relations serve as potential potholes in the second half. Collectively, these risks suggest more modest equity returns in the second half of 2019.
The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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