Why Equity Markets Still Have More Room to Run
Last week’s podcast featured a great discussion on the outlook for U.S. markets and the economy, with Brian Wesbury, Chief Economist at First Trust. Jeremy Schwartz also spoke with Rick Pitcairn, CIO of Pitcairn, about family office planning.
Some highlights of the conversation include:
- A discussion on the founding of Pitcairn as a family office—one of the great American entrepreneurial success stories and its 100-year history as an organization in family office money management and multi-generation estate planning. The Pitcairn family office was set up to manage the wealth created by the founder of PPG Industries, but in 1985 it expanded to run the wealth of now 100 different families. Pitcairn discussed a number of equity strategies his firm developed for managing equities in a very tax-efficient and friendly way, and he believes they can create tax alpha on top of the equity managers they are using.
- Wesbury has been bullish throughout the last nine years, and his worldview has largely been spot-on. He sees really strong growth in corporate productivity and profit margins that are supporting this market.
- Wesbury is still bullish at these levels. Based on his current assumptions for measuring the market valuation, he saw year-end 2017 levels being about 10% undervalued and seeing more earnings growth of 20% this year can further push markets higher—which includes using a discount rate of 3.5% to value the Earnings Stream.
- We discussed the inputs to Wesbury’s market forecasts—and the level of the 10-Year that would be required to say the market is “fairly valued” at today’s prices—and also at what level of the 10-Year one would need to say markets are overvalued today. This would likely be a 10-Year bond yield pushing 3.9%—and even pushing 5% before Wesbury would get worried about entering overvalued territory.
Listen to the interesting conversation on how to value equities and the various inputs involved, along with the take from a successful family office.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.