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Use stock rallies to reduce risk

Looking ahead, equity total returns will have to rely on earnings as the major driver

The US stock market is de facto back at its historical highs, yet the growth momentum continues to shift lower and profit margins remain under pressure. Indeed, markets interpreted the recent Fed talk and the sharp increase of non-farm payrolls as a confirmation of an ongoing economic recovery.

GLOBAL stock markets have rallied since early October. Yet earnings and earnings revisions have been weak. As a consequence, most of the valuation metrics have moved back into expensive territory - a 19 times reported earnings implies a strong 2016 earnings recovery, which we simply do not