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On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Sam Templeton, manager, global communications, discussed the recent strong performance in U.S. markets as well as the financial crisis engulfing Turkey.
S&P 500 tests all-time high as strong earnings power markets
U.S. markets have surged in recent weeks, Ristuben noted, with some of the major indexes nearing all-time highs set in January of this year. Case-in-point: the S&P 500® Index, which hit 2,863 on Aug. 7—flirting with its record close of 2,872 set on Jan. 26. Why the recent gains? In his mind, it all comes down to earnings.
“Over the past six months, it’s been a battle royal in the U.S. stock market between corporate earnings and valuations,” Ristuben said, “because while earnings have been very strong, U.S. stocks have also remained very expensive, in my opinion.” Because of this, Ristuben believes it’s taken the market awhile to process just how incredible quarterly earnings have been.
“What I believe we’re seeing now is the market realizing that, earnings-wise, things basically don’t get any better than this,” he said, emphasizing that the earnings growth seen so far this year—roughly 24% in both the first and second quarters—is virtually unprecedented this late in the market cycle.
The Turkish financial crisis: A contagion for global markets?
Turning to the financial turmoil unfolding in Turkey, Ristuben explained that over the past few years, the nation has been running a red-hot economy by borrowing money, leading to both a fiscal deficit and a current account deficit (i.e., importing more goods and services than it exports). One of the main problems with this, he said, is that a lot of the debt that Turkey has been issuing is U.S. dollar-denominated.
“Because of this, the market is now fundamentally becoming concerned about the country’s stability—and becoming incrementally unwilling to extend easy credit to Turkey,” he said, adding that this has resulted in tremendous downward pressure on the Turkish lira. So, is there a way out of this crisis for Turkey?
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