One of the biggest bulls in the market expects that stocks will get their groove back this year. However, his predictions come with an expiration date.
According to Joseph Zidle of Blackstone, there is evidence that the rising inflation will tear into corporate profits and stretch the spending of consumers within the coming 12 months.
Last Thursday, during an interview with CNBC’s ” Futures Now,” he stated: “As we get into 2019, this earnings cycle is going to run its course. The earnings growth will have to slow because the year-over-year comps get so tough.”
He added: “When you’ve got slower earnings growth and higher interest rates, that’s going to knock down equity valuations.”
Zidle says that it is a scenario that is already unfolding.
He continued: “It’s not strong, but it’s broad-based. We’re seeing it in things like higher oil prices and higher gas prices where oil is up 50 percent year over year. Gas is up 20 percent year over year. We’re seeing it all throughout wages,”
However, despite his cautious outlook for the coming year, Zidle believes that it is way too premature for the investors to head into the bear camp. He said that the “tug-of-war” between macro headwinds such as tensions in North Korea and fundamentals will end favourably for stocks by summer.
Zidle stated: “When you’re lifting up the hood on the earnings story, it really tells you they’re quite healthy. So, I think the fundamentals are going to ultimately win out here.
“I’m optimistic. I think the second half is actually going to be a very good environment for equities.”
Zidle has a 3,000 year-end forecast on the S&P 500, approximately an increase of 10 percent from the current levels. According to Zidle, materials, industrials, energy, and emerging markets will drive the markets back into record territory.
However, he pointed out that most investors are currently sabotaging themselves by turning their backs on overweight positions in stocks in favour of fixed income, an area of the markets that are often seemed to be considered safer when there is fear of an economic slowdown.
Zidle stated: “Investors are overweight fixed income, and they’re intermediate to long-term durations. So, they’re not positioned for that rise in rates.
“They are taking duration risk at a time when they ought to be very short duration and taking credit risk.”