The stock market began 2020 at record highs, but there are a lot of things that can go wrong from here.
The geopolitical risks that emerged Friday with an airstrike that killed an Iranian military commander are just the beginning.
Geopolitical risks are always a reason for caution, but they're unpredictable and get pushed to the sidelines in a bull market. Now, they're front and center. Savita Subramanian, chief quant and equity strategist at Bank of America Merrill Lynch, recently put out a note saying the corporate earnings outlook is flat and that the market "feels toppy."CNBC's Bob Pisani recently reported
Historically, a forward-looking price-to-earnings ratio for the S&P 500 is around 15. Today, it's about 18. "It's no great secret that U.S. companies have been piling on debt in the past decade," the analysts write. "A mere ten years after the financial crisis, total non-financial corporate debt stands just shy of $10 trillion, or about 50% higher than the lows seen in 2009. Interestingly, debt is NOT a major theme in today's marketplace."
"We are somewhat baffled by the gaggle of Wall Street strategists cheerleading the soft landing based on what we believe is a faulty reading of the macro indicators," he writes. "One frequent refrain is that we now have an upward sloping yield curve and hence recession risk has evanesced. Yet, the curve is, on average, 12 months ahead of the cycle, not an instantaneous indicator of real time recession risk.
Federal Reserve Board Chairman Jerome Powell testifies during a full committee hearing on "Monetary Policy and the State of the Economy" on July 10, 2019 in Washington,DC.the Fed does not anticipate making any changesA sharp increase in inflation, however, could force the Fed to raise rates, which could topple a market accustomed to ultra-low rates. It would also pressure companies with large debt loads.
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