TUESDAY NOVEMBER 24, 2009

The Return of the Multinationals

Many investors question the sustainability of the stock market.  How can it be that the market is up 50% while the economy struggles and unemployment  is north of 10%?  The short answer is that the stock market is not the same as the U.S. economy.  The companies of the S&P 500 are mostly multinational companies that are not entirely dependent on the U.S. economy for their prosperity.

The world's GDP forecasts are actually increasing.  While it is reasonable to expect the U.S. economy will continue to struggle with high unemployment and a weak housing market, the rest of the world, particularly in Asia, is growing nicely. On average, the S&P 500 companies garner well over 50% of their revenues overseas.  As the international economic growth accelerates, these companies are poised to benefit.  For example, YUM Brands is scheduled to open at least one Kentucky Fried Chicken restaurant per day this year in China!  That's a lot of chicken...and cholesterol!

At least for these large, investment grade companies, the credit markets are once again available to them.  With interest rates at historic lows, cheap credit will fuel international growth.

These companies are lean and mean.  The depth of the recession forced these companies to cut costs.  They are now poised to benefit from any revenue growth.

Finally, while everyone frets over a weak dollar, these companies stand to see their earnings profile enhanced by a weak dollar.

One of the interesting facets of the stock market recovery has been the underperformance of the large cap, multinational companies.  With international economies leading the world's economic growth, that might be about to change!

POSTED AT 1899-12-30 20:55:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

RECENT POSTS

Better Unemployment Number

The "Safety of Bonds" Myth

Just like that!

Ugly August

Bright Side of Double Dip Fears

All eyes on Wyoming

Lack of Business Confidence

Are bonds forecasting a double dip?

Are rates too high?

Slowdown?