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David Rosenberg: 10 Things Making Investors Giddy for Stocks

David Rosenberg: 10 Things Making Investors Giddy for Stocks

(Stock Photo Secrets)

By    |   Monday, 08 August 2016 11:52 AM

The stock market is making record highs with each passing week, shrugging off terrorist attacks, the U.K. withdrawal from the European Union, an aborted military coup in Turkey and a rancorous presidential election in the U.S.

David Rosenberg, chief strategist and economist at Gluskin Sheff & Co., lists 10 reasons for investor giddiness over U.S. stocks. The S&P 500 on Friday closed at a record high of 2,181.87 for a gain of about 6.7 percent so far this year as the non-farm payrolls report showed better-than-estimated jobs growth.

Rosenberg provides these reasons for investor optimism in an Aug. 8 obtained by Newsmax Finance:

  1. Latest payroll data have quashed the threat of an imminent recession. The Labor Department on Friday said the U.S. economy added 255,000 jobs in July, beating the Wall Street consensus forecast of 180,000.
  2. The Bank of England’s response to the Brexit by cutting interest rates to record lows and hinting at plans to buy bonds to keep rates suppressed. Interest rates decline as bond prices go up.
  3. Governments throughout the world are talking about fiscal stimulus to help boost growth. In the U.S., Democratic presidential nominee Hillary Clinton and Republican Donald Trump are touting infrastructure spending plans among their proposals to boost growth.
  4. The Federal Reserve is unlikely to raise interest rates this year, at least according to market forecasts.
  5. “China’s growth has managed to stabilize and the large-scale capital outflows that threw global investors into a tizzy at the turn of the year have abated,” Rosenberg says.
  6. Financial stocks last month began to perform better than the broader market, generally a sign of growing investor confidence in the market.
  7. The 10-year U.S. Treasury yield didn’t move much after Friday’s jobs report, making stocks look like a good value compared with bonds.
  8. Italy has taken steps to deal with the deteriorating financial condition of major banks including Banca Monte dei Paschi di Siena.
  9. “Hillary Clinton’s lead in the polls is widening and while she has tremendous baggage, she is the one that the markets prefer to see in the Oval Office,” Rosenberg says.
  10. A 20 percent decline in oil prices this year “was orderly and did not have the same panic attached to it this time around.”

Rosenberg also considers whether stocks are overvalued given that corporate earnings are still declining and banks are setting aside more money to cope with possible credit card defaults. Meanwhile, Delta Air Lines has seen a decline in passengers.

“How good can things really be when Delta Air Lines reports that passenger unit revenue declined 7 percent year-over-year last quarter?” Rosenberg says.

Companies are lowering profit estimates for the current quarter, too.

“We have seen 50 companies so far guide their numbers lower while 23 have raised theirs,” Rosenberg says. “The consensus on current quarter earnings is now -1.5 percent year over year – just a month ago, the analysts collectively were calling for +0.5 percent.”
 

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RobWilliams
The stock market is making record highs with each passing week, shrugging off terrorist attacks, the U.K. withdrawal from the European Union, an aborted military coup in Turkey and a rancorous presidential election in the U.S.
stocks, market, Rosenberg, rally
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2016-52-08
Monday, 08 August 2016 11:52 AM
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