Making Hay (Almost) Monday
Many charts today
It’s hard to believe that earlier this year there were widespread expectations of massive federal spending cuts due to DOGE. Now both houses of Congress are poised to add trillions to the deficit over the next decade. The Senate’s bill looks to be the greatest offender in that regard. How long the U.S. Treasury bond market will remain relatively calm when faced with multi-trillion-dollar deficits for as far as the eye can see may be one of the most important issues with which an investor must grapple. The present frothy nature of the stock market, which became even more so today with the Trump administration’s latest tariff flip-flop, would indicate most are blissfully unconcerned. As the old saying goes, ignorance is bliss. A rational postscript to that might be: “until it isn’t”.
Emerging Market (EM) Projected Earnings Versus the S&P for 2025
Profits growth in emerging markets (EM) has significantly trailed that in the U.S. for the last 15 years. This, in turn, has been a leading reason why EM stock markets have generated just a fraction of the S&P’s return over that timeframe. For those who think this lengthy performance lag is coming to an end, the above chart is highly supportive of that potential shift. (For much more detail on why Team Haymaker believes EMs are likely to produce far higher future returns than the U.S., please see the main body of this newsletter.)
“Emerging markets are markets you can’t emerge from in an emergency.” -John Templeton, as relayed by Gavekal Research’s Louis Gave
“I see an exceptional amount of complacency.” -Jamie Dimon, May 19th
Emerging or Submerging?
Veteran CNBC watchers, which I confess I am, may remember a commercial that ran constantly back in the 2010-2012 timeframe. It was from a well-regarded LA-area money management firm that now has, amazingly, $160 billion in assets under management. One of the reasons for my amazement is the aforementioned ad campaign.
For several years, this firm’s continual refrain was to buy emerging market stocks because of “their structurally higher growth rate”. You may recall those words because they were repeated multiple times, day in and day out.
Unfortunately, that structurally higher growth rate turned out to be much more transitory than structural, at least when it comes to earnings per share (EPS). Over that period, the emerging market (EM) universe has reported EPS growth in the 3% to 5% per annum range. For the S&P, the compound annual growth rate has been 8½%. This, in turn, has led to the following ginormous, to use a highly technical term, lag by the EM index vis-à-vis the S&P.