I think one of the things people are really struggling with today is [that] the market’s gone up a lot. Do I get in now? Right? Is there more to come? Or is it about to correct? And that’s a really hard call to make.
You look at what’s been happening: You have manufacturing picking up after what had been a lull in activity, and so indicators such as the PMI are suggesting that manufacturing’s getting much healthier. We’ve had really robust job growth over the last few months, and incomes are going up, which really suggests that there’ll be future consumer spending. So you’re…I’d say the economy is getting into this virtuous cycle, and that probably is behind two-thirds of the increase in the market that we’ve seen. Maybe another third or so are…I think you could attribute to some of what could come from some of Trump’s make American business great again policies.
I would say [that] given that we have a backdrop of rising economic tide can give you some confidence that there will be future earnings growth. And while the market is maybe a little ahead of itself, it doesn’t look like it’s on the verge of some kind of precipitous decline.
So I think investors have to make sure they’re balanced between their stock investments and their bond investments. Just because the market went up doesn’t mean it can’t go up some more.
And I think the other thing investors need to just be mindful of is [that] I’d say US investors in particular…the smartest ones have had most of their money in the US, ‘cause that’s where the returns have been. And I think [portfolios] have become a little imbalanced in that the US is probably dominating their portfolios. And there should, you know, everyone should be looking at your portfolio, saying do I have enough overseas exposure—whether that’s developed or emerging markets, because that part of the world hasn’t had the same growth and has much lower stock prices. And so even in the fourth quarter, you started to see some evidence of this: earnings growth in Japan was something like 13% in the fourth quarter, in Europe it was 11%, in the US it was 5[%], but, you know, suggesting that outside the US growth is picking up. And if you actually look at earnings estimates, they’re also picking up more overseas than they are in the US. So that’s the one place we’ve been engaging our clients to say, make sure you have enough exposure to the non-US markets.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.