Photo: Bloomberg TV
After getting off to a stellar start at the beginning of the year, markets and the economy have cooled off.In an interview with Bloomberg TV however, BMO’s Brian Belski says that despite the lack of investor confidence, stocks are set to do well.
He also said investors in the past decade have focused too much on macro as opposed to stock fundamentals:
“What we have here to quote Cool Hand Luke is “a failure to communicate”. Investors clearly have confidence issues this year and that’s why you’ve seen these sharp moves to the upside and the downside. We continue to think we’re on the verge of the next great bull market.
…I’m not trying to price myself out of a job but in the last 10 – 12 years we in the investment world have become so macro dominated we’ve forgotten that really fundamentals define stocks. We live by one very simple premise that stocks lead earnings, which lead the economy. “
In a note to clients, Belski along with BMO strategists Nicholas Roccanova and Mira Borisova point out that “S&P500 earnings are not U.S. GDP”. They write that earnings growth is more sensitive to emerging market growth anyway so it could weather a slowdown in the U.S.. They also say historical precedence shows that stock market performance has been strong even when earnings growth has deteriorated.
In fact, continuing on his vein of stock leading earnings, which lead the economy, Belski says:
“We think the stock market revival we’ve seen in the last several weeks is foreshadowing what’s going to happen in the economy again …meaning a recovery in the second half.”
Bottom line: While higher earnings growth have led to higher stock prices, it doesn’t mean that weakening earnings growth and macro data means that stocks are going to take a hit.