Ep. 234: Jay Pelosky on Bullish Equities, Early Cycle US and Trump Losing
Sep 20, 2024
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Jay Pelosky, founder of TPW Advisory and a veteran with 35 years in financial markets, shares his insights on the current economic landscape. He discusses the resilience of global markets amid recession fears and emphasizes that equities extend beyond the tech sector. With an optimistic outlook for growth, he advocates for small-cap stocks and commodities. Pelosky also dives into the political implications of the upcoming elections, particularly the Trump vs. Harris matchup, and explores the evolving dynamics of a tripolar world.
The podcast highlights the argument that fears of an imminent recession may be overstated, as the economy shows stable growth signals.
Significant productivity growth in the U.S. indicates companies can maintain earnings without severe cost-cutting, enhancing market confidence.
The discussion on the potential impact of the upcoming U.S. elections suggests a shift in market dynamics favoring Democratic policies and growth.
Deep dives
Economic Growth vs. Recession Concerns
Market participants have expressed concerns about a possible recession, especially as bad economic data leads to weakened equities. However, some analysts argue that claims of an imminent recession have been exaggerated for years. Instead, they propose that the global economy is experiencing stable growth, with indicators like low unemployment and steady job creation. This perspective highlights that current economic conditions suggest a rotation in market dynamics rather than an outright recession.
Productivity Growth as a Key Factor in Earnings
One major insight is that productivity growth in the U.S. has been improving significantly, reaching a year-over-year increase of 3.4%. This growth in productivity allows companies to maintain or even grow their earnings despite stable or modest economic expansion. Better-than-expected productivity levels bolster confidence in the ability of firms to deliver on forward earnings estimates without resorting to layoffs or cost-cutting strategies. The rising forward earnings estimates across various global markets further support a positive outlook for equities.
The Rotation of Investment Strategies
Investors are currently analyzing shifts from large-cap technology stocks to smaller-cap and cyclically-oriented stocks. This rotation signals a broader belief in a diversified market recovery, where sectors like industrials, financials, and commodities play a significant role. Analysts also point out that equity markets have maintained strength despite fluctuations in technology stocks, reflecting resilience across different sectors. The analysis suggests opportunities for investors willing to embrace this rotational strategy.
Bearish Outlook on the U.S. Dollar
The dollar has been viewed as over-owned and expensive, leading to a bearish outlook among some analysts. This perspective stems from the expectation that economic growth rates in the U.S. will begin to slow relative to other regions, thus diminishing the dollar's dominance. Recent data indicates that moving below technical levels could propel the dollar into a quicker decline, providing a favorable environment for non-U.S. equities and commodities. As the Federal Reserve shifts towards a rate-cutting cycle, this trend is expected to support dollar weakness.
Implications of U.S. Elections on Market Dynamics
The upcoming U.S. elections may significantly influence market sentiment, with forecasts suggesting Vice President Harris could emerge victorious. Analysts argue that the economic policies under Harris are likely to favor higher growth, positioning her as a strong candidate for fostering a favorable business environment. Current polling indicates heightened enthusiasm among Democratic voters compared to their Republican counterparts, which may aid in rallying support. Observations of resource allocation, particularly in terms of funding campaigns, suggest a strategic advantage for the Democrats heading into the elections.
Jay Pelosky is the founder of TPW Advisory. He has over 35 years of buy-side and sell-side financial market experience. Before going independent, Jay was at Morgan Stanley, where he was ranked #1 by Institutional Investor in Global Equity Strategy and Global Asset Allocation Strategy. In this podcast, we discuss what the chances of recession are, US earnings and productivity, equities are not just a tech story, and much more.