Monday, 13 March 2017

US stock market “not a bubble” but weakness in small caps “disturbing”

The US stock market is not in a bubble, so stay invested.

At least, that is what Eddy Elfenbein said at the Crossing Wall Street blog.

“If the Street’s estimate for 2018 is accurate, that means the S&P 500 is currently going for 16 times next year’s earnings,” he wrote. “To my mind, that’s a bit above average, but it’s hardly excessive.”

Elfenbein also said that a recession “doesn’t appear to be on the horizon”.

He concluded that while the market will “see some ups and downs”, he sees “no reason for us to expect any severe troubles for the next several months”.

However, Art Cashin, a market veteran and director at UBS, commented on CNBC last week that a “counter-intuitive” trend is appearing in the market with small-cap stocks. The IWM, the small-caps stock tracking ETF, has lost almost all of its gains year to date.

Cashin calls the trend “slightly disturbing” as “one of the Trump initiatives would be in international trade, therefore the multinationals might be under some stress, and the small caps should be fine”.

Cashin also thinks that problems could emerge as “the Trump agenda will be far later in being implemented than people thought”, as well as from geopolitical events like tensions in North Korea and the upcoming French elections.

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