Edison Strategy

Edison’s corporate strategy research is designed to keep senior management aware of recent economic developments and capital market activity through regular written updates, webcasts and face-to-face meetings.

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Alastair George

Alastair George
Strategist


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Equity risks are rising: economic surprises turning lower

We are viewing with increasing concern the building evidence of disinflation in industrial commodity and energy markets. Economic surprise indices have turned sharply lower on a global basis, a move which cannot be fully explained by seasonal factors. In this context we were surprised by the relatively hawkish recent policy statements by the US Federal Reserve and Bank of England. For the US Fed, it was very much a case of one and not done at the recent FOMC meeting, where US rates were increased again. For now, earnings growth forecasts near 10% for each of the US, UK and continental Europe remain intact but we also detect ebbing momentum in this data compared to 6m ago.

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25/05/2017
Equity strategy and market outlook May 2017
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In this month’s strategy piece, Alastair George believes that global equity markets are being supported by declining inflation expectations pushing bond yields lower and consensus forecast for profits growth of 10%, which have remained intact throughout this year. While this Goldilocks period for equities may continue, there is a mutual inconsistency in expecting both robust profits growth and ultra-low bond yields to persist in the medium term. Therefore, even if our base case is for markets to gradually drift higher in the short term, we continue to believe equity risk should be selective, focusing on specific catalysts or event-driven situations as the current low-volatility environment is likely to incentivise further M&A activity.
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28/04/2017
Equity strategy and market outlook - April 2017
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In this month’s strategy piece, Alastair George finds that equity valuations are above average across the UK and Europe, and exceptionally high in the US. The combination of high valuations and price momentum accelerating to the upside, but concentrated within a narrow range of digital stocks, is starting to feel like the ‘financial instability’ the US Fed has been keen to avoid. He remains cautious and believes developed market equity valuations appear to price in a sustained period of strong economic growth, which is at odds with expectations in the bond market. However, an overvalued market does not exclude the possibility of attractive stock-specific or event-driven situations – which, in turn, are relevant to the debate that currently favours passive over active management.
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30/03/2017
Equity strategy and market outlook - March 2017
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In this month’s strategy piece, Alastair George believes that it is time to move back to a cautious rather than outright bearish position on global equity markets as both the Fed rate increase this month and the evident difficulties of implementing Trump’s policy agenda were relatively easily absorbed by markets, suggesting a degree of support at current levels in the short term at least. Nevertheless, strong survey data and equity market prices remain at odds with much more modest improvements in hard economic data and earnings forecasts; he therefore remains cautious on equities for the medium term.
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23/02/2017
Equity strategy and market outlook - February 2017
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In this month’s strategy piece, Alastair George believes that little has changed in the global outlook during the past month and we remain cautious on equities, primarily based on valuation concerns. Earnings estimates do not thus far seem to be tracking the improvement in survey data leaving global market valuations at the upper end of historical ranges. We believe the recent surge in French sovereign risk relative to Germany highlights the imbalances at the core of the eurozone, which has this time manifested in a striking divergence of French and German macroeconomic performance post-2008. We would suggest the euro is not yet out of the woods.
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26/01/2017
Equity strategy and market outlook - January 2017
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In this month’s strategy piece, Alastair George believes that even as headlines trumpet the arrival of Dow 20k, we are becoming increasingly concerned that the conditions for a sudden shift lower in equity markets are in place. The combination of high valuations on a global basis and the prospect of tighter US monetary policy in 2017 is sufficient reason to be cautious and a stronger dollar is unhelpful for risk assets. However, it is political uncertainty which is giving us pause for thought. Investors’ high degree of confidence in Trump’s growth- and US-friendly policies contrasts with the willingness to downplay the more worrisome components of Trump’s policy package, which lean strongly towards protectionism and a go-it-alone US foreign policy.