Many investors are concerned about the sustainability of S&P 500, still the RBC is bullish on stocks. What made the RBC think that the stocks will be heading higher?
14th October, AtoZForex – S&P 500 has been rising over the five past years with its value being up 55 percent. It made investors doubting index’s sustainability. However, according to Jonathan Golub, Royal Bank of Canada (RBC) chief U.S. market strategist, stocks should still go up. Jonathan Golub listed five reasons explaining why RBC is bullish on stocks.
RBC is bullish on stocks: Solid cash flow and Return of Capital
In Jonathan Golub’s view, solid cash flow will be the main driver of the market. Despite the fact that earnings have been unpromising, the companies are doing well generating more cash flow for every dollar of earnings. Also, Jonathan Golub does not support the perspective of some market observers, who state that ‘earnings season is starting off on the wrong foot’. The Chief U.S. market strategist countered that “if you look at the early reports, they’re beating by something like 5 percent,” which is in his perception a decent figure.
Furthermore, the market strategist is bullish on the stock market due to the return of capital. He commented that dividends together with buybacks yield 4.6% on the S&P. That’s an impressive number considering where corporate bond yields are. Jonathan Golub added that ‘it makes stocks very attractive and 100 percent of this is from cash flow from operations’.
Volatility, stock valuations, and few surpluses
Another reason is the volatility. The VIX, a sign for the CBOE Volatility Index, is down. People pay more for assets if there is less volatility. Considering that now the volatility is lower, the stocks will go up. Referring to stock prices, they tend to shift from low to high over long periods of time. Mr. Golub expects that now stocks have room for an increase.
Last but not least, Jonathan Golub considers that stocks ‘are more likely to slip into correction when sectors are unreasonably priced’, stating there are few surpluses in the market.
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