Neutral, like Switzerland or Sweden? Starting this week, we are expanding the categories in our “Trend” column in an attempt to provide more detailed information about our views on market sector movements. While we have two big trends, Favorable or Unfavorable, there is another state that we sometimes find ourselves in. This is a Neutral state. A Neutral state indicates a view that is neither bullish nor bearish. It occurs when our overall market trend is down, but there is significant enough strength in the markets to warrant some investment. This is where we find ourselves at this time with all of our major equity indices, except for emerging markets which is in a Favorable trend.
This neutral view is based on price movements, and it is confirmed by the economic data. Forward-looking earnings-per-share (EPS) estimates have come down significantly since the end of last year (see chart above). At this point it looks like (see chart below) there will be negative year-over-year growth in EPS for the first quarter of this year (Q1 2019). This is not ideal, but it is understandable since Q1 2018 was the first quarter where the tax cuts of 2017 came into effect causing EPS numbers to shoot up. Overall the US economy looks ok, but there are still some significant headwinds from the international markets. This is all background for the neutral place that we find our portfolios in at this time.