Newsletter
Rob Hayward
January 2020
Earnings
The reporting of earnings for the final quarter of 2019 has begun with banks. These were mostly better than expected. The results helped to underpin the strong performance in the equity market. This week the reporting will continue with results from Proctor and Gamble, Johnson and Johnson as well as Netflix and many more. Equity valuations (PE ratios) remain high, suggesting that improved earnings are required to remove the concern that a sharp pull back in price may be seen at some point.
CAPE
This is a link to Shiller’s site with the data
This is the PE ratio for the whole market, smoothed over 10 years to remove the effect of the business cycle. You can see that the previous peaks in the index are seen just before the stock market crashes.
Central banks
The European central bank will meet this week to outline policy under the new President. There is concern that this maybe a little tighter with interest rates than the previous regime. The US Federal Reserve will meet next week. No change in rates is expected. The Bank of England will also meet next week. There is rising expectation that UK interest rates will be cut. The tendency towards lower rates around the world is providing a supportive backdrop to equity and bond market.