Scepticism is probably the best reflection of investor sentiment at the moment, with many calling into question the post-Brexit move higher in markets. In addition to the recent turn in yields, the three areas of concern appear to be a maturing profits cycle in the US, a sharp slowdown in China and the economic impact of Brexit. While we agree that the risks to the cycle have increased, it is important to note that that sentiment, positioning and valuations do not embody the exuberance that characterizes the peak of a bull market. Even if the Fed hikes rates in September, risking a further short-term correction in markets, excess money growth remains supportive of further PE multiple expansion. Ultimately, if the global economy maintains its post-crisis resilience, valuations could revert higher, in our view.
* Scepticism is probably the best reflection of sentiment towards stocks at the moment, in our view. With a background of performance that has been challenging, and outflows that have been significant, many have been calling into question the sustainability of the post- Brexit rally in stock markets. This scepticism hasn’t escaped the consensus of our fellow
equity strategists across the sell-side. In Europe, the average strategist forecast implies 4.2% downside to STOXX 600 according to Bloomberg. While we were not able to find a time series for this data in Europe, history from the US suggests that the consensus is far more conservative than historical norms