May 2016 Commentary

Wouldn’t you like to know what the original text for Yellen’s June 6th “major policy” speech was going to report? Given all the “nudge, nudge, wink, winks” Fed talkers had provided during the past few weeks, there’s little question the “data dependent” FOMC was planning to hike rates in either June or (more likely) July. However, post that US jobs shocker last Friday, June 3rd, there’s now no question her text will be rewritten and most prognosticators will be forced to ponder how much their universe may need to change. I had been in the camp that the US economy was going to remain okay, but given the S&P 500’s stretched valuation of 18X reported EPS (P:E ratio) amidst anemic organic top line growth (1.6% CAGR this cycle vs. 6.8% historically) and falling profit margins, the SPX would remain inside the 1850-2125 trading range it’s been in since November 2014. My view remains that it will generally stay within this range unless oil is markedly lower or higher than $48.50 in 6-8 months...

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Emma Querengesser