16 January 2017 · 2 min read

Earnings Revisions: Waiting for upgrades?

Though global equities continue to benefit from significantly increased investor optimism, US and continental European earnings forecasts for 2017 have remained stubbornly static over the last 3 months. However, in the UK 2017 earnings estimates continue to move higher, tracking the decline in sterling and providing a degree of fundamental support for the FTSE100. For US and continental European equity markets, the increasing divergence between 2017 profits forecasts and their respective price performance, when added to the lack of valuation support, puts a question mark over how much further the rally can run.

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9 January 2017

Valuations trump noisy narratives: increased caution on global equities

Price/book valuations point to sub-par equity returns over the next 12m

Judging only by current equity market valuations, global equity investors are significantly more likely than usual to achieve only below average returns over the next 12 months, if prior correlations remain a guide to the future. Average price/book multiples for world equities are once again at peak levels, similar to those prevailing in 2007 and 2000, and this is reinforced by a similar picture for P/E ratios. We believe investors should factor in the possibility that broad equity market exposure may result in weak or negative returns and stock-pickers cannot rely on a tailwind of benign markets over the next 12m.

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5 December 2016 · 1 min read

You can’t be given a bloody nose twice

The vote ‘no’ to Italian constitutional reform in this Sunday’s referendum has cost the Italian prime minister Renzi his job and perhaps thrown the Italian government into turmoil. Markets are however not in turmoil. The euro is close to unchanged, having fallen modestly after the referendum result. European equity markets are sharply higher this morning. While Italian 10y government bond yields have breached 2%, this increase in yields is notably less sharp than at the time of Trump’s election. Investors who panic sold after Trump and Brexit have been reconditioned (correctly in our view) to not immediately re-price risk on the back of specific political events.

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22 November 2016 · 3 min read

Earnings revisions: Gap widens between U.S. equities and earnings forecasts

Though the bullishness is palpable, U.S. equity markets are not being driven higher by 2017 earnings forecasts, which have declined during November. In the absence of upgrades, we would now question how far the slogan of “Make America Great Again” can push U.S. equities. In the UK, market indices appear better supported as earnings forecasts are still increasing, even as the stock market has lagged. In Europe, in euro terms both the market and estimates have remained stable over the last quarter.

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14 November 2016 · 2 min read

Forward guidance - Trump style

These are strange times in global markets. Trump’s election, previously feared as a universal negative for global markets, has been accompanied by remarkable strength in risk assets. We highlighted investor positioning as a factor last week but now question if there is there more to this rally? Could Trump’s fiscal policies represent a “whatever it takes” moment?

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10 November 2016 · 3 min read

Trump’s double surprise

It is quite clear that in the days leading up to the U.S. Presidential election, both markets and surveys got it wrong. Traditional polling once again failed to spot the depth of support for radical political change. This was after all the U.S., which has delivered the strongest post-crisis economic performance of any developed nation. 

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