EM still looks like a better value than Europe. The MSCI Emerging Markets (EM) Index and S&P 500 Index are both trading at 5-6% discounts to their 25 year averages, while Europe is trading in line with its average, on a forward price-to-earnings ratio (PE) basis. Though the nearly 20% Japan-driven discount for the EAFE relative to the S&P 500 looks attractive, the EM discount to the S&P 500 is larger at 26% and still, based on fundamentals, looks like the better place to be for suitable strategies.
Brexit: Now What? Following the expected defeat of British Prime Minister Theresa May’s Brexit plan in Parliament on Tuesday, and her survival of the subsequent confidence vote, skepticism has built that any deal will be struck by the March 29 deadline. As a result, the odds have increased that the U.K. will stay in the European Union. A second referendum on Brexit is one possible path to that end. Even in a hard Brexit scenario where the U.K. leaves without a deal, the economic damage globally is likely to be manageable. Consider that the U.K. economy has not performed any worse than the broader European economy in recent months.
The shutdown drags on. The U.S. government shutdown has now stretched into Day 27. Past shutdowns have been a non-event for the U.S. economy and stocks, but we’re in uncharted territory now. On the LPL Research blog post due out later today, we’ll outline the economic implications of a prolonged shutdown given the current macroeconomic backdrop.
Beige book follow-up, Philly Fed Index bounces back. The Federal Reserve’s (Fed) Beige Book, a report about current economic conditions across the 12 Fed Districts, indicated overall economic activity increased across most of the U.S. last month. Reported growth was modest to moderate with the majority of districts indicated that manufacturing expanded, consistent with the Philadelphia Fed survey released this morning. However, the Philadelphia Fed Index bucked the recent trend of weaker manufacturing reports, registering 17.0 vs. 10.0 consensus expectations, and rebounded strongly from December’s 9.1 reading, largely driven by new orders, which hit their highest level in six months. Though it’s only one indicator, the aggregate data suggest the U.S. economy is seeing pockets of moderating growth but remains on firm footing.
- Housing Starts (MoM, Dec)
- Building Permits (MoM, Dec)
- Initial Jobless Claims (Jan. 12)
- Eurozone CPI Report (Dec)
- Japan CPI Report (Dec)
- Japan Industrial Production (Nov)
- Industrial Production (MoM, Dec)
- University of Michigan Sentiment Index (Preliminary, Dec)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
Investing in foreign and emerging markets securities involves special additional risks. These risk include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solitication of their products or services. LPL Financial doesn’t provide research on individual equities.
All performance referenced is historical and is no guarantee of future results.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
Index data obtained via FactSet
For Public Use – Tracking #1-812994 (Exp. 01/20)