According to results from a Reuters poll on global equities shows that many equity strategists are expecting a continued runup in stock indexes across the globe, but gains for 2018 are expected to remain underpinned by increasing risks and return less growth than 2017.
Key quotes
“Following a strong performance in 2017, world shares hit their latest run of new highs this month on solid economic and corporate earnings growth. But rising interest rates and concerns about escalating trade tensions have made the direction of travel more turbulent and trade more volatile.
“We expect markets to remain choppy in the months ahead as investors weigh up the various conflicting influences that are now in play. The volatility that we anticipate will at times be a source of discomfort for investors, but it will also be a source of opportunity,” said Paul O’Connor, head of the multi-asset team at Janus Henderson Investors.
Nearly a decade of easy monetary policy, which fueled the current bull run, has resulted in stretched share prices, with the price-to-earnings ratios in a majority of stock indexes already trading above long-term averages.
Strategists have previously said corporate earnings growth should be a result of capital business expenditure and not the current trend of stock buybacks. Nearly half of 66 strategists who answered a separate question said the switch from share buybacks to substantial business investment is not likely to happen anytime soon. Only five said it would happen this year, 18 said it would happen next year and 11 said in 2020.
“We maintain that there is clear evidence that funds originally earmarked for capital investment are being redirected to share buybacks, and that this trend is likely to continue for so long as geopolitical and trade-related uncertainties remain elevated,” noted Robert Phipps, chief investment officer at Per Stirling Capital Management.
When asked, respondents were split on their latest outlook for world stocks compared to the beginning of 2018. Thirty-eight of 82 strategists said they were more bearish and 37 were more bullish. The remaining seven said they had not changed their view.
Wall Street’s longest-ever bull run – as measured by the Standard & Poor’s 500 – is set to slow its charge to end the year around current levels as earnings growth slows sharply, which will also temper any advance next year.
Share
