Economic Highlights
20 January 2020
Welcome to our Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as the FTSE weekly winners and losers.
Many private investors have failed fully to participate in what is by many measures the longest bull market in history. And, of course, the longer it becomes, the greater the fear that the end is just around the corner.One feature of the last decade is that investors, scarred by their experiences in 2000 and 2008, when equity markets fell around 50%, have remained fearful of a repeat performance. I describe it as “waiting for the other shoe to drop”. It has meant that many private investors have failed fully to participate in what is by many measures the longest bull market in history. And, of course, the longer it becomes, the greater the fear that the end is just around the corner. But longevity per se is not a useful predictor of the imminent future. Indeed, in the post-financial crisis world of repressed interest rates, bond yields and volatility, many of the old rules of thumb based on historical averages no longer seem to apply.
Growth in the 5-7% range combined with a dividend yield of around 2.5% suggests the potential for high single-digit equity returns.The current consensus bottom-up forecast for global company earnings growth this year is around 9% (IBES data), although our feeling is that this is a little high. Even so, growth in the 5-7% range combined with a dividend yield of around 2.5% suggests the potential for high single-digit equity returns, and we are happy with that as a central view – although not a precise forecast as such! It remains hard to see the global economy accelerating in a synchronised manner sufficiently to push earnings growth considerably higher, and valuations would have to move into decidedly nose-bleed territory if they were to be the source of much stronger returns.