Probity Suisse’s top strategist told CNBC on Wednesday the one thing that he is most concerned about as markets stage a comeback.
“There’s totality inconsistency in the underlying earnings data,” Jonathan Golub, chief equity strategist, said on “Fast Money.”
With reference to 14 percent of S&P 500 companies have reported fourth-quarter results thus far. Nearly three in four of those societies beat earnings estimates, but just about three in five topped sales forecasts. Profits were up 13 percent, but that’s the slowest proliferation since fourth-quarter 2017.
“The revenues are knock-the-lights-out good, and the margins are horrifically bad, based on Wall Street consensus expectations,” Golub thought.
Still, Golub said there are two positives injecting faith in the market.
The first is that the Federal Reserve has polish off raising interest rates in this cycle. “That’s what the market believes, and I think the market’s going to be just,” he said.
The second is a drifting volatility index that has fallen almost 47 percent from its Christmas Eve tight-lipped. The CBOE Volatility Index closed down Wednesday at 19.52.
“As we have a VIX that moves towards 15 and below that, you’re prevalent to have a market that’s going to continue to rally,” Golub said.
There can be challenges if the VIX rises again, because that’s when investors watch over to sell off, which explains the fourth quarter, he added. Last year was the worst year for stocks in a decade, which Golub intended in December was unjustified and there could be a “big surprise” in 2019.
Golub has a year-end target of 2,925 for the S&P 500.
“I think that the way you play this is an opportunity space either where this is going to be a much bigger return to the upside or this thing is going to get ill-favoured. I don’t think you’re going to get something in the middle,” Golub said.
The S&P 500 saw a 5.80 bump on Wednesday, closing at 2,638.70. The token is up 5.26 this year.