Tags: Gibbs | stocks | US | economy

Stock Watch: US Slumbers While Rest of World Roars

By    |   Friday, 10 April 2015 10:30 AM

Stocks around the world are soaring, but not in the United States. The S&P 500 index has climbed just 1.6 percent so far this year, the worst performance of any major market index for the period.

The trend is ironic, given that the U.S. economy is in better shape than are most of those overseas. But U.S. stocks have suffered to some extent because of their own six-year rally that has seen the S&P 500 triple.

That has made investors concerned about valuations. The S&P 500 carried a trailing price-earnings ratio of 20.25 as of April 2, up from 17.69 a year ago, according to Birinyi Associates.

And while the U.S. economy is stronger than those overseas are, it slowed down in the last six months. Growth totaled only 2.2 percent in the fourth quarter, and many economists predict it shrank much further in the first quarter.

"I would definitely say investors should take some money off of U.S. large caps and maybe allocate some more into international sectors, particularly Europe and Japan," Erin Gibbs, equity chief investment officer at S&P Capital IQ, tells CNBC.

"Yes, our economy is definitely stronger, but when you look at corporate earnings growth, you really see a huge divergence."

While analysts expect flat earnings for the S&P 500 over the next year, they predict an increase of 12 percent for Europe and 15 percent for Japan, Gibbs notes.

"I still see further appreciation [for foreign stocks] going into the next year because of this significant growth, because they're coming off of easy [comparisons] and lows."

MarketWatch columnist Michael Sincere sees several signs of trouble for stocks.
  • "Job growth is weak," he writes. Non-farm payrolls rose only 126,000 in March, the lowest gain since December 2013. "This is another clear indication that the economy is weakening," Sincere says. The labor force participation rate matched a 37-year low of 62.7 percent last month.
  • "Hot money is flooding the market." Exchange-traded stock funds enjoyed a $58 billion inflow in February, and investors now have more $1.28 trillion is U.S. equity ETFs. "This is hot money, which could be dumped at the first sign of a price breakdown," Sincere explains.

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Stocks around the world are soaring, but not in the United States. The S&P 500 index has climbed just 1.6 percent so far this year, the worst performance of any major market index for the period.
Gibbs, stocks, US, economy
363
2015-30-10
Friday, 10 April 2015 10:30 AM
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