Key Points
• As long as global economic growth improves modestly, we expect corporate earnings can climb.
• Markets have been exhibiting changes in leadership beneath the surface, and we expect these trends to persist in the coming months.
These are confusing times for investors. Global equity markets have been churning over the last couple of months while exhibiting leadership changes beneath the surface. The recent increase in government bond yields has hurt bond proxies and defensive sectors but helped the financial sector.1
Technology stocks have sagged, but prospects appear bright for some tech areas.1 Weak oil prices have hurt energy companies, while some health care industries have rallied.1 Looking ahead, we think improving corporate earnings are the key ingredient needed to sustain the equity bull market. And with economic growth prospects looking solid, we think earnings can climb.
Weekly Top Themes
1. The strong jobs market points to continued good growth. The higher-than-expected 220,000 new jobs created in June is a good sign.2 Wage growth, however, remains disappointing, with the annualized growth rate at only 2.5%.2
2. Institute for Supply Management readings point to stronger growth. The ISM manufacturing and nonmanufacturing indices recently hit three- and two-year highs, respectively, leading us to believe that U.S. real gross domestic product growth could approach 3% for the second quarter.3
3. We expect the global economy to accelerate slowly. The current Goldilocks scenario of low inflation and slow growth should allow the current long expansion to continue, even as the rate of growth remains slower than average expansions.