Iran just a headline risk ... for now Iran just a headline risk ... for now\images\insights\article\bull-small.jpg January 21 2020 January 6 2020

Iran just a headline risk ... for now

Monetary accommodation, benign inflation and easing trade tensions should drive markets.
Published January 6 2020
My Content

In the wake of the killing of Iranian Maj. Gen. Qassem Soleimani, stocks have pulled modestly off record highs, oil prices have jumped and haven trades such as gold and Treasury bonds have rallied. But while the potential for escalation bears watching, developments in the tinderbox that is the Mideast arguably represent a headline risk, not a fundamental risk to the global economy or markets. Bull markets end with recession, and there’s scant evidence of one occurring anytime soon.

In fact, our view is that global central bank accommodation throughout 2019, continued benign inflation in 2020 and easing trade tensions (a Chinese trade delegation plans to travel to Washington next Thursday for a signing of the Phase One "skinny" deal) will spur a reacceleration of global growth this year. This, in turn, should allow S&P 500 earnings to recover in the second half and valuations to continue to expand further. Historically, P/E multiples expand nearly a point a year on average during non-recessionary years, suggesting a market P/E of 19.5 this year if it follows the norm.

This would support our year-end target of 3,500 on the S&P even with modest earnings growth. Within equities, we favor parts of the market that are both levered to a reacceleration in growth and offer relative value, such as industrials, financials, energy and materials, U.S. small caps and emerging-market equities.

Tags Equity . Volatility . Markets/Economy . Politics .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging-market and frontier-market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

Price-earnings multiples (P/E) reflect the ratio of stock prices to per-share common earnings. The lower the number, the lower the price of stocks relative to earnings.

Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Stocks are subject to risks and fluctuate in value.

Federated Global Investment Management Corp.