LIVE MARKETS-Risk-asset train chugging along, but is the end of the line in sight?

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RISK-ASSET TRAIN CHUGGING ALONG, BUT IS THE END OF THE LINE IN SIGHT?

U.S. stocks have recovered most of their tariff-driven losses from earlier in the year. That said, there remains a tug-of-war between heightened U.S. policy uncertainly and a resilient U.S. economy.

As Bob Doll, chief investment officer at Crossmark Global Investments, sees it, the U.S. economy has solid foundations and U.S. monetary policy has not been restrictive, but President Trump's aggressive tariff policies are threatening the U.S. economic outlook.

However, given recent developments, the question now is whether tariffs have gone from being a major risk factor to just a minor irritant.

In any event, Doll says that given the close correlation between trade and corporate profits, the earnings outlook is cloudy, nonetheless.

Meanwhile, Doll says that economic conditions, particularly in the U.S., are late-cycle. Therefore, his view is that the risk-asset train has little track left, although neither the end-of-the-line, nor date are yet clear.

"Consistent with late cycle conditions, equities are expensive. The deteriorating U.S. fiscal outlook, combined with inherent upside inflation risks and accommodative monetary policy, may push U.S. Treasury yields higher," writes Doll in his latest "Deliberations."

He adds that aside from earnings, bond and credit markets will dictate how stocks fare over the next few months.

Therefore, Doll's bottom line is that the ongoing economic expansion should keep forward earnings somewhat underpinned over the next 6-12 months. However, given current valuations, equities are "vulnerable to either earnings downgrades or a further rise in interest rates."

(Terence Gabriel)

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