I'm Linda Duessel, Senior Equity Strategist at Federated Investors.
What are you watching in the months ahead?
We watch just two things mainly. Just try to figure out where the market's going. Earnings and the price I ought to pay for the earnings. As earnings are concerned, I'm always on the lookout for evidence that a recession may be on the horizon. And truly we say no evidence of a recession on the horizon at all. That's good, I look at the price I pay for those earnings. What price I should pay for earnings historically has been most closely associated with the level of inflation in our country which today and in around 2%, perfect. That is when we would pay the most for every dollar of earnings and if we can convince ourself as this year runs out that there is no inflation problem, the Fed can stay at bay, then price to earnings multiples can actually rise. And so we are bullish as we make our way into next year.
What about impacts on the geopolitical front?
There are a series of binary events who will play themselves out in the next 12 to 18 months. Whose results the market will either like a lot or hate. What are those events? Well, one is Brexit, the fifth largest economy in the whole wide world and they haven't figured out how to do a clean Brexit. There's also the potential for really, now, three trade wars that have not been settled here in the US. US versus China, well discussed. Still open problems with our trade with Europe and then of course the USMCA which has not even been signed into law yet. Personally, all of that aside, I am worried about the slow down that has been happening in the last number of years over in China. Where they can potentially fall into recession, the second largest economy in the world falls into recession, that will reverberate around the globe.
Views are as July 15, 2019 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Federated Equity Management Company of Pennsylvania 19-20164 (7/19)