Dear Client
All-in-all,
this JSE correction is probably a buying opportunity, but because the market
may fall further over the next few days, perhaps one staggers ones buying over
a few days or a week. I am in good company when I am saying that, as most of
the top economists and analysts world-wide are agreeing on that.
As is
usual, the US stock market may have started the global correction, the first
correction since the MSCI World Global Index fell by -4.5% from August to
November 2016. A pull back or a correction is way overdue. Obviously no one
knows how long it may last or how much it may decline, but a normal Bull-market
correction, seldom declines more than 7% for the S&P 500 Index (currently
down -3.4% from its high).
With
tax rates lowered from 35% to 22% only a month ago in the biggest economy in
the world, with company profits soaring, full employment (only +/-4% unemployed),
an undervalued USD, which is very good for USD exports, the US market has maybe
run too fast since 1 January 2018, but there is no indication or signs of a
coming depression, which usually accompany a share market crash or a
Bear-Market.
So
far 40% of US companies have reported 4th quarter 2017 earnings,
with 79% beating forecasts. Earnings are up an extraordinary +20% year-on-year
in the fourth quarter and will likely be up 23% in the calendar year 2018,
helped by the tax cut, global growth, a weaker dollar and higher oil prices.
Fair
values for the S&P 500 Index is currently at 2 736 (based on a PE
Multiple of 18 times forecast earnings of 152 for 2018), meaning at 2789
S&P 500 Index is only +1.9% overvalued. Shares usually rise 20 – 50% above
fair value, before a crash. Economic data in the USA continues to be solid,
which is effecting most of the developed and emerging markets.
Kind
regards,
Andre