Are Investors Shrugging Off Global Crises?

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Aug. 18 (Bloomberg) -- S&P Capital IQ Global Markets Intelligence Vice President Robert Keiser discusses the markets and how global crises are affecting investor confidence. He speaks on “Market Makers.” (Source: Bloomberg)

Of global markets intelligence.

What's the relationship between these geopolitical risks and stock markets?

The stock market trades very well.

It does restore the occasional injection of anxiety -- ukraine, russia, iraq, but the downside is extremely omitted.

The market seems to levitate against that will stop on a four to 12 months earnings basis, the s&p 500 is trading historically a very modest valuation and at the same time, the u.s. economy looks to be picking up steam a little bit.

More importantly, ford earnings expectations are rising.

The improvement in the overall fundamental position does seem to be offsetting these short-term geopolitical stresses at the moment.

At what points are financial markets most vulnerable to geopolitical risk?

Markets are always vulnerable when expectations get ahead of the fundamentals will stop the valuations right now are very modest and the geopolitical tensions are keeping u.s. interest rates, the ten-year treasury this morning trading at a 235 yield.

The question of valuation, a sound economy, sound valuations in the stock market, the path of least resistance seems to be higher and not lower.

You say the valuations are modest in the s&p 500 is trading at 17.5 times earnings.

Maybe that is close to what some people call the long-term average, but two years ago, the s&p 500 was trading at 14 times earnings.

At 13 or 14 times earnings, the economy was at a price for recession.

The fiscal cliff, sequestration, not a lot of consumer confidence.

We are in a different position because the economy is looking like it's improving and earnings expectations going forward, we use our s&p capital iq numbers and we have the multiple at 15 .5 times, which is modest, historically.

We were recently above 16 times forward earnings when we had lower forward earnings.

So we've seen a correction in terms of valuation, but not much.

These valuations are not stretched and as long as the fed is perceived to be on hold for the intermediate term, there's not a lot of reason to expect significant corrections.

Investors are stepping in and buying the dips.

That's part of what i was getting at -- the idea that the presence of the fed with its unconventional monetary policy, although quantitative easing is slowly becoming a thing of the past, the fed has a huge balance sheet.

If they were not in the market, would asset prices be more susceptible to geopolitical risk?

Quantitative easing and the next rarely easy monetary policy does underpin risk-taking.

The risk friendliness of the stock market in the intermediate term.

Increasingly, as people become more and more aware that the economy is showing self sustaining growth to jack drees, you will start to see -- self-sustaining growth trajectories, the more people start to think the fed will have to normalize rates at some point and you'll start to see that have an influence and take away the hand that is underpinning the stock market for the past couple of years.

One of the questions that comes up is topline growth -- how do you grow revenue?

At some point, you could argue they wind up crimping demand -- we heard that from cisco.

Revenue from russia was down 30%. how long does it take for that to trickle down?

Revenue growth drives off it growth.

The story is one of improvement.

How sustainable is that when we keep on getting geopolitical crises around the world?

Domestically, the 60 plus percentage of geographic josh of gdp growth comes domestically.

As long as you have that, you will see domestic economic growth.

Perhaps something close to 2.5% to 3%. europe is an entirely different picture.

Nobody anticipated seeing negative gdp growth at this time and s&p 500 earnings come from non-u.s. to mistake sources, that's going to make the earnings expectations a little more difficult.

Are we looking at the prospect of a double or triple dip recession or is europe going to get by and have a flat quarter and look more like the u.s. as the u.s. -- as the u.s. completes the second half of this recovery cycle.

Given the european economy the benefit of the doubt, we expect to see some version of quantitative easing after october of this year, which will underpin profit growth.

The beginning of this year, very few people were looking for the prospects of ongoing recession in europe.

Europe was supposed to be well into their own recovery cycle and it's not happening.

Is there anything you see in the conflict over gaza or the standoff between the ukraine and russian backed rebels and what's happening in iraq that you could see transforming into a catalyst for something akin to a selloff?

European consumer confidence could be influenced by it ends close to their borders.

We are not insulated from russia, ukraine or any of these tensions going on right now, but in europe, it's a very different story.

As we get to the end of the summer, you'll see europe worried about rising energy prices coming out of this conflict with russia.

It could affect european consumers as they start to get nervous about what their energy cost could be approaching did winter.

Ask tank you very much.

We appreciate your take.

This text has been automatically generated. It may not be 100% accurate.


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