On Air with Altair: 3Q 2017 Market Review Video
Want to hear Altair’s analysis of the markets, but do not have the time to read all of Altair Insight? Watch our video summary of the report and you will be caught up on our market review in 4 minutes.
One of the major topics that you discuss this quarter is the better global economic outlook that we’ve seen as of late. Tell me a little bit about that.
In this quarter’s Altair Insight one of our main themes is what we’re seeing worldwide, which is a broad worldwide expansion. And it’s the first time in many years. Prior to the last year or so, the U.S. has been fueling the growth of the world, whereas now we see more of a broad-based expansion. And in this quarter’s commentary, we quote the managing director of the International Monetary Fund where she says the long-awaited global recovery is finally taking root. And two examples we point to in the commentary are: One, Europe. Europe’s growth has been muted at best for many years, and finally, in the second quarter, we see Europe’s GDP growth annual pace of about 2 percent. We haven’t seen that number in over six years. We (also) look at company earnings, and company earnings are healthy both in the U.S. and abroad.
Stocks have been on a nearly uninterrupted run higher this year. How long can this bull market last, and what’s our opinion on stock valuations?
Well if we look at the current valuation of the market – and we use PE ratios, or price-to-earnings ratios, to look at how expensive or cheap the market is. Today’s PE ratios are above average, meaning the market is more expensive than historically it has been, however, far from the record high PEs we saw in the late ‘90s at the end of the dot-com bubble. But what has been record-breaking this year in 2017 is how little or low volatility we’ve seen in the market. In fact, we haven’t seen one period with a 3 percent drawdown – again, historic. So in the commentary we talk about how it’s very likely that volatility will pick up. But if we look to assess how likely a major market correction is, major market corrections are almost always associated with recessions. And today’s economic indicators lead us to believe that a near-term recession is very unlikely.
Washington is very focused on taxes. What are the implications for investors?
As we’ve been talking about in a few of our last quarterly commentaries, the process of getting tax legislation done in Washington has been slow and noisy. But in the end we do think it will get done, they will get a tax bill. The main impact for investors is on higher company earnings. Lower corporate tax rates can lead to higher company earnings, which helps stock prices. Now some of it’s already built into today’s market. However, we do not think all of it is.
Taxes are getting a lot of attention. What other items are out there that aren’t getting as much attention, and what do they mean for the market?
One item we talk about in the commentary is deregulation. The administration is proceeding with deregulation, and both regulation and deregulation over the long term have unintended consequences, both good and bad. However, over the short term, deregulation is favorable for investors. In fact, if you look at the surveys today, deregulation is being cited as a major factor behind today’s high levels of optimism for both business owners and operators.
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