Happy Star Wars Day!
Corporate earnings are, quite frankly, fantastic. It appears that earnings grew around 27% over this time last year, which is double what was expected from the analysts that I follow! This has given markets a boost, both psychologically and quantitatively.
The concerns in private credit — a serious risk few are talking about — has not gotten better. Bloomberg reported that borrowers who made payments with borrowed money has increased to 11% in the last quarter. Some Federal Reserve governors have commented on the risks lurking in private credit, but they have allayed fears that this could lead to a 2008-style contagion.
Overall, I am growing optimistic. Corporate earnings are good, and guidance has been positive. Frustratingly, however, my recession signals are still flashing red. My overall advice is to be invested, but to understand what downsides might be unrecoverable for your plan. We may be in a scenario where the recession trigger sneaks up on us and everything happens all at once. Risk controls, in this environment, make a lot of sense.
Chart of the Week
This week’s chart comes to us from Fathom Consulting and shows the valuation of various stock markets around the world. As is pretty clear from the chart, the US market is the most expensive of the developed economies. This may be a fear trade, but history suggests that opportunities may be hiding in less expensive places, like the European Union.
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