The unintended consequences from the continued altering of the capital structure of firms, by issuing debt and retiring equity at a time when operating cash flow growth is showing signs of fatigue is disconcerting. This artificial massaging of EPS is not sustainable and if non-financial corporate credit quality has peaked for the cycle as seems likely, the equity risk/reward tradeoff remains skewed to the downside.
Bottom Line: A capital preservation mindset is still warranted. Continue to prefer global defensive over cyclical sectors.
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