January 22, 2020
That's not surprising. But what is the new information that will drive markets in the coming months? Earnings and economic data — both of which are setup for positive surprises.
On the latter, as we discussed yesterday, the PMI data will be key, because of this chart …
As confidence in a positive trade war outcome waned last year, so did business confidence, and therefore, so did manufacturing activity — not just in the U.S., but globally.
But a deal has been done. And the data over the next two days on global PMIs will give us early indications on how quickly the business confidence will bounce back. We get UK and Japanese manufacturing data tomorrow, and then German, Eurozone and U.S. readings (for January) on Friday.
On the earnings front: We're getting into the heart of earnings. Remember, coming in, Wall Street was looking for a contraction in S&P 500 earnings for Q4. So far, the big banks have led the way with good numbers, showing a strong consumer. That’s a good sign. And Wall Street is projecting energy, as the sector to be the biggest gainer on the year.
With the above in mind, if you believe (as I do) that we're in for a year of above trend economic growth (finally, 10 years after the financial crisis), then we should like the two sectors that had the biggest weighting dislocation in the S&P 500 over the past decade. In 2006, the financials represented 22% of the S&P 500. Today, the financials are just 13%. In 2006, the energy sector represented 10% of the S&P 500. Today its 5%.