US Equity Market: Are Things as Good as They’ll Get?

The US equity market’s ascent paused in October as investors digested rising rates, slowing global growth and the persistent question: “Are things as good as they’ll get?” As many observers expect further turbulence ahead, Franklin Equity Group’s Grant Bowers shares his view on the US equities, the economy, and how to stay focused on long-term investing in a volatile market.

The US bull market continues to confound fears of its demise.

While we’ve seen some wobbles in October, we don’t see a reason to believe the market will be thrown off course. But the longer the bull run lasts, the more investors are asking: “Are things as good as they’ll get?”

Two Pillars for Optimism

On a macro level, we remain optimistic in our US market outlook. Looking at what drives US companies and the economy in general, we see two main pillars: corporations and consumers. Both remain healthy, in our view.

US corporations continue to generate earnings growth rates above global peers, while domestically, unemployment is low, consumer confidence is high, and wages are starting to increase. We don’t see the selloff in equities at the end of October as being a precursor to a larger economic recession but more of a recalibration as the market assesses the changing global landscape.

With the recent selloff, valuations have come down and, in our view, are at a level that accurately reflects the investment environment. Strong earnings, coupled with the pricing pullback earlier this year, suggests to us that things don’t look too bad on a price-to-earnings ratio.1

US economic growth, profit margins and stock returns are still well above global peers.

Inflation is creeping up in the United States, but appears relatively anchored. Growth has been robust but not too fast. In our view, there are no signs of the credit imbalances or excesses that often lead to overheating.