We stay positive on the outlook for global equity market in the second half of 2009 and
we are raising our US and European earnings and index targets (S&P 500 end-09 up to
1020 from 900, FTSE Eurofirst 300 to 960 from 820 and FTSE 100 to 4800 from 4300).
This pro-market view is based on our expectations of a more equity friendly environment
in the second half of this year with the economic and corporate earnings headwinds
subsiding, as economies around the world move from ‘virtual’ to ‘real’ recoveries and the
earnings downgrading cycle comes to an end.
Sure, visibility still isn’t great and further down the line there may be longer-term
concerns, such as the possibility of lower trend growth rates in the developed world. But
our focus is on the next 3-6 months. And on this horizon things feel far better now than
they did back in Q4/Q1 when fears of a ‘Great Depression’ and ‘financial armageddon’
were alive and kicking.
At lot still rests on the macro drivers. These remain critical to the direction of the global
equity market, in our view. However, unlike some, we don’t feel that equities need a Vshaped
profile to make further gains. In our view, this would be the most surprising
outcome for the market given that the consensus view appears to still be looking for some
form of economic disappointment. If our economists’ are right and the profile of
economic activity stays positive over the next six months, we expect this to provide a
supportive backdrop for global equities.
The earnings driver is also featuring prominently at the time of writing, given that we are
in the thick of the US Q2 results season. Our detailed analysis of the results that we have
had so far provides reassurance with 74% of companies (to-date) beating consensus
expectations with, interestingly, financials providing the biggest upside surprise.