General Market Commentary September 2018

The tug of war between politics and fundamentals continued in September. U.S. equities continued to perform well, benefiting from strong economic and profit growth. For Q3 2018 the estimated earnings growth rate for the S&P 500 is 19.3%. If 19.3% is the actual growth rate for the quarter, it will mark the third highest earnings growth since Q1 2011. Regional PMIs continue to highlight a broadly synchronous trend of expansion in the global industrial cycle, however the pace of growth has slowed in all the major regions other than the US.

Corporate results and outlook statements remained very strong in 2Q18 but the effect of tariffs and increasing trade tensions will create a more volatile backdrop. This remains the most obvious near-term risk. We continue to monitor the situation closely; the new NAFTA deal and a cooling in threats to impose tariffs on US auto imports have been taken as a positive.

Despite a long and powerful bull run, the case for U.S. stocks persists. Given improving analyst estimates of forward earnings in the face of tax reform and strong economic growth, many valuation metrics show the U.S. equity market to be only slightly expensive relative to history. Meanwhile valuation measures suggest that international stocks are cheap relative to both the U.S. and their long-term histories.

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