Global market sell-off-are we nearly there yet
As markets fall, it is easy for a bull market in bearish analysis to develop. We are not unfamiliar with the bear case having consistently highlighted the overvaluation of developed market indices in recent years. The risk of a correction has been increasing since the US Fed in particular stepped back from policies which pushed global indices higher. Former Fed policymaker Richard Fisher’s comments on CNBC on how he was part of a group that “frontloaded a tremendous market rally” still have the ability to shock, even if not exactly groundbreaking news.
Read more...Profits expectations declining as fast as 2008
It is well known that analysts’ profits forecasts start out over-optimistic and decline throughout the year. But we do not think this phenomenon is being given sufficient attention – 2015 was the worst year for earnings revisions since 2007, Exhibit 1. One could have been forgiven for thinking that a recession was on its way given the pace of the declines.
Read more...Why the Spanish election is being largely ignored by investors
This weekend, Podemos shattered the 40-year political duopoly between the Spanish Popular Party and the Socialists. Taking previous public commitments at face value, there is limited chance of any block or coalition securing a parliamentary majority, Exhibit 1, and the likelihood is that new elections will have to be held in early 2016.
Read more...FED flips, flops, flips?
Though seemingly days away from what would be the first increase in US interest rates in a decade, data points which indicate a significant turn in the credit cycle could already be underway keep turning up.
Read more...ECB: Sins of omission
The sharp declines in European markets after the ECB’s policy announcements show the dangers of talking the talk without following through. If you talk extensively about “size, composition and duration” – and then go on to highlight duration as the primary monetary policy change, then markets expecting fireworks will be certain to be disappointed. For the crowds of investors conditioned to push up equity prices and go short the currency on QE announcement days, size matters.
Read more...The grow slow years
For the past three years in the US and Europe, the bulk of equity returns have come from a re-rating to higher valuation levels rather than sales-led profits growth. In an environment where returns on cash and high quality government bonds are likely to remain low, investors continue to look to equities to deliver the returns required to cover long-term liabilities.
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