Clues and commentaries on the global prospects for stocks, bonds and alternatives.
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CBI-John Goode Market Review
ClearBridge | July 21,2014

John Goode discusses multiple issues of current importance for the economy and financial markets

  • The performance of the stock market since the low in March 2009 owes much to the suppression of interest rates. At some point, normalization of interest rates might prove a significant headwind should earnings growth at this juncture not be a sufficient offset to rising interest rates. Many companies have used stock buybacks to enhance earnings in an environment where revenue growth has been restrained. Without meaningful revenue growth in the future, it may be difficult to maintain profit margins and report meaningful earnings per share growth. Nonetheless, we continue to believe the path of least resistance for the stock market will be up in the next few quarters, but whenever there is a consensus about anything in the capital markets, we like the odds associated with taking a contrarian view
  • We have been firmly in the camp that interest rates in the coming years will be higher but there have been a number of factors that make timing when this begins in earnest difficult. First of all, the reliance on debt in the United States, Europe and in places like Japan has created a situation where many developed economies can't tolerate higher interest rates and this realization is behind Federal Reserve efforts to "suppress" them
  • Over the next five years, we believe emerging market stocks should outperform developed markets, including the United States; however, this segment of the world stock market has rallied nicely in recent months and is not as inviting as it was earlier this year. We think China and its economic fortunes hold an important key to when broad-based and consistent outperformance develops for emerging markets
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