Need to Know: Growth stocks still have room to run before reaching previous bubble valuations, Credit Suisse strategist says

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Remember way, way back in history—Tuesday morning, to be precise—when the leader of the free world said that, given his choice, a U.S.-China trade deal wouldn’t be completed until after the November elections?

Well, never mind that. Bloomberg News reports the U.S. and China are moving closer to agreeing what tariffs would be rolled out in a phase one deal and will be able to complete a pact by the December 15 deadline, when tariffs on Chinese goods are set to increase. So optimism is back in the air as stock futures are higher.

Also optimistic, at least toward U.S. growth stocks, is Andrew Garthwaite, the global equity strategist at Credit Suisse. In the call of the day, he reiterates an overweight call on U.S. growth stocks, which he says can outperform even when bond yields rise.

In a note to clients, Garthwaite points out late-cycle bull markets often see a growth bubble reaching multiples of 45 to 60 times earnings. U.S. growth stocks are trading at a mere 28 times earnings. He says tech giants Microsoft MSFT, -0.16%  and Alphabet GOOG, +0.42%  as well as defense contractor Raytheon RTN, -0.14%  are growth stocks that are cheap by its own valuation methodology, with a free cash flow yield above 3% but net debt-to-EBITDA below 2.

Garthwaite adds small-cap stocks tend to outperform when economic growth recovers, yet they’re not pricing in much of a recovery. U.K. small caps in particular look unusually cheap.

Credit Suisse has an underweight rating on low-volatility stocks, that are largely defensive.

The buzz

As mentioned above, the focus is on U.S.-China trade talks, even as Beijing was upset the U.S. Congress overwhelmingly approved a bill targeting China’s mass crackdown on ethnic Muslim minorities.

President Trump is still in the U.K. at the NATO summit that on Wednesday had yet to generate any major headlines. Back in Washington, the House Judiciary Committee will have its first hearing since the release of a report by the Democrats on the House Intelligence Committee that found “serious misconduct” by the president.

North Korean leader Kim Jong Un rode a white horse up a sacred mountain, which analysts say is a sign he’s about to make a major announcement.

The economics calendar features the ADP private-sector employment report and the Institute for Supply Management’s nonmanufacturing index.

Alphabet is in focus after announcing that founders Larry Page and Sergey Brin will exit active management—but stay on the board—and that Google Chief Executive Sundar Pichai will now become chief executive of the parent company. GoPro GPRO, +0.78%, the action camera maker, rose in premarket trade as its chief executive said “we crushed it” during the Black Friday and Cyber Monday sales promotions.

The markets

After three straight losses, U.S. stock futures ES00, +0.45%  pointed higher.

European stocks SXXP, +0.95%  also were higher, while Asian stocks ADOW, -0.84%  slumped.

Gold GC00, -0.09%  and silver SI00, -0.13%  futures fell, and bond yields TMUBMUSD10Y, +1.70%  rose.

Random reads

Canada’s Prime Minister Justin Trudeau appears to gossip with NATO leaders about Trump in footage caught on tape. There is also video of Princess Anne spurning the Queen’s invitation to greet the U.S. president.

In news that shouldn’t really come as a shock, skiing after drinking alcohol vastly increases the chances of injury.

A SpaceX cargo mission combines “mighty mice, fires and beer research.”

Underwater speakers helped bring life back to abandoned ocean reefs.

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