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a black swan somewhere, a trade war, an event with Korea," Roberts said.įitch Ratings also cited a trade war as a significant danger, even though Trump has softened his isolationist talk lately. "What I'd be looking for is not so much a smoking gun, I'd be looking for a geopolitical event. Roberts believes some type of blow-up on the world stage would be needed to knock the market off course - South Korea firing a nuclear weapon, or Trump facing actual impeachment proceedings, to name two. "This leads us to believe that the market is discounting very little in the way of policy changes, making stocks less vulnerable if they don't occur," he said. However, Golub points out that most of the Trump trade has eroded anyway - the dollar has weakened, financial stocks in particular have stalled and some of the biggest gainers have been defensive rather than cyclical names. Therefore, some fear, an inability to get his pro-growth agenda through Congress will spell doom. Stocks have been in rally mode since Donald Trump's win in November's presidential election. Perhaps the most important is the Trump trade. economy avoids recession, elevated valuation shouldn't be a problem.
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Valuations: At 17.3 times earnings, stocks are priced above normal.
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Hard data have been lagging high levels of soft data, but Golub says that's not unusual: "They're designed specifically to lead the hard data." The former consists of sentiment gauges while the later indicates actual activity. The debate between soft data and hard data has been ongoing through the year. (A reading below 50 indicates contraction.) However, Golub said history shows that as long as the reading stays above 52, that's positive for stocks. The most recent reading for April was 54.8, the lowest of the year. Purchase Managers Indexes "rolling over." The PMIs are closely watched gauges of manufacturing activity that show the percent of companies expanding, and they've been weakening lately. He laid out four fairly common bearish arguments these days, but concluded that they are "increasingly contrived": Jonathan Golub, chief equity strategist at RBC Capital Markets, took a stab at it in a note sent to clients Monday morning. Not that many aren't trying: Worries about economic growth that could turn out weaker than expected, central bankers putting the screws to monetary policy and valuations getting out of whack are just three arguments against the market.