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February News
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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

 

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