US equity markets continue to power ahead. Given the current momentum, we could see the September (and all-time) highs being tested fairly soon. A sense of calm has descended on the capital markets once again. It seems the volatility we saw a couple of weeks ago is behind us for now, with the VIX falling back in line with the year's average at 14%. Fed president James Bullard's recent comments were a key catalyst, although we have seen the BoJ, BoE, ECB, PBoC and now the Riksbank in Sweden all coming out with dovish or equity-supportive actions. This has given investors the confidence to put money to work in the equity market. (VIEW LINK)
Yes, slightly expensive from a historic perspective but, of course, these are anything but ordinary times. Good point re energy and financing costs.
Great read, Westy. While many attributed the recent falls to other factors - Ebola, Europe and Fed fund rate expectations just to name a few, many seasoned professionals put the sell off down to stretched valuations in US equities. Has the current earnings season put pay to that notion, setting the scene for fresh highs into year-end, or do you see other risk factors that could potentially derail the rebound that markets are currently discounting? Certainly, unless the FOMC says otherwise, central bank policy looks even more supportive compared to when markets were at their previous peaks.
We haven't seen the sort of upgrades yet from sell side to suggest that valuations are less of a concern. The S&P pulled back to 15.5x forward earnings on Oct 15 and is now back at 16.5x. The 5-yr average is 14.26x, but earnings growth on this quarterly is better. The falls in yields and gasoline at lowest levels since 2010 should also help