Equity prices remain resliant

The FTSE all world index reached a new record high post Janet Yellen’s two-day public meeting with congress. As US companies make up 50% of the index, it may be something of a surprise that this has not happened sooner. Year to date global equities are up over 4%, the dollar down about 1%. The FTSE 100 up 2.5% and government debt, flat. Stock markets are about earnings, and according to Merrill Lynch, analysts are forecasting low teen earnings growth for the year ahead. Historically analysts tend to start the year anticipating something in the region of 10% earnings growth year on year, the last four years have been no exception. However, those estimates have failed to reach expectations by the year end. With economic optimism rising investors will hope this year is the exception.

Equity investors appear to remain focussed on the “Trump bump” trade. North Korea firing missiles at Japan, caused nothing more than a blip. Questions about exactly has been going on with Trump and the Kremlin leading up to the presidential election, again seems to cause not much of a flicker on the trader’s screens. The fact that Greece has still not resolved how it will pay back its debts, barely registers with investors. Marie Le Pen’s showing in the polls likewise has not caused much in the way of jitters. It is worth noting that the fact that bonds have barely moved this year, despite growth and inflation expectations picking up around the globe. This could suggest that not everyone is buying into the reflation trade.

Investors continue to face dilemma’s, those who own equities think about taking profits however will miss the income and wonder what else to do with the money, aside from spend it. Those who have constantly feared the equity market, continue to wonder if the opportunity is gone.

Warren Buffet filings have recorded the Sage put $12bn into equities post Trump’s election, despite standing shoulder to shoulder with Hilary Clinton before the election. It has also been released that he has increased his stake in Apple and been investing in airline stocks. Both sectors he has historically publicly stated he avoids.

Apple reached a new record high this week. Unlike most investors this fact is not something that Mr Buffet worries too much about when deciding when to buy. His concern is not with the stock level but whether he sees the market undervaluing the investment case. A good lesson for all investors. With roughly half of Apple’s market value held in cash outside of the US, Mr Buffet would appear to be be putting faith in the new president coming good on his ability to facilitate the repatriation of that capital.

Posted on February 16, 2017 .