We Expect The Current Trading Range For Stocks Will Continue
Corporate earnings results have been very strong this quarter, but equity markets have struggled to find much upside momentum. Investors have been wondering whether this quarter’s results represent a shift to a stronger growth environment or if they represent a temporary peak. These concerns were highlighted when Catterpillar’s Chief Financial Officer indicated that the company’s first quarter results may well be the best for the year in a closely-watched statement.
The problem is that we likely won’t know whether earnings have indeed peaked any time soon. We believe that positive earnings momentum is likely to continue. We think the macro backdrop looks good for long-term stock prices, given that overall economic growth remains decent, inflation is still relatively low and monetary policy remains supportive.
Over the short-term, however, investors will likely remain cautious and continue to pay attention to downside risks. Good earnings results likely mean that equity valuations will help stock prices maintain a floor at their February low of 2,532 for the S&P 500 Index.1
At the same time, a lack of long-term confidence in the economy and earnings may mean stock prices won’t move ahead of their recent high of 2,875.1 As such, we think investors will likely face ongoing volatility as equity markets remain stuck in the current trading range.
Robert C. Doll is senior portfolio manager and chief equity strategist at Nuveen Asset Management.
1 Source: Morningstar Direct, Bloomberg and FactSet
2 Source: Bureau of Economic Analysis
3 Source: JP Morgan Research