- Our US equity strategists are forecasting unusually low 2020 EPS growth for the level of multiple expansion in the previous year. As Exhibit 6 shows, there is little comparison in the last 30 years.
Those lessons help to shape some of our key investment views for the year ahead:
- We are only equal-weight global equities, despite forecasts of better global growth, due mainly to the view that a portion of this recovery is already priced into many markets.
- Among major markets, we are most optimistic on stocks in Korea, Japan, Brazil and the UK, in part because we think that these markets will see material EPS growth next year, enough to support current multiples.
- Among major markets, we are most cautious on US equities, a direct function of our expectation that they will see an almost unprecedented lack of earnings growth following such significant multiple expansion.
We think that the theme of ‘show me’ will apply over the full course of the year ahead. But it will get an early test in less than two weeks when 4Q19 earnings season kicks off. These figures won’t tell the whole story and technically still cover activity in the year, and decade, just gone. But we think that they will still provide an early test of the extent to which fundamentals can deliver.