We believe the time has come for the baton to be passed to earnings growth as the driver of stock markets. However, increases in US taxes may limit the potential for earnings to grow and in bond markets, we expect a rebound in yields, driven initially at least by inflation expectations as the US economy swiftly resumes normal activity.
While low interest rates and inflation warrant a stock market premium, some normalisation of valuations looks inevitable. We expect a more rapid increase in company earnings than in share prices to help correct valuation multiples. It is difficult imagining when this would happen given the still extensive central bank and fiscal support for markets.
For more details, watch our video with Daniel Morris
Read our Asset allocation monthly – Passing the baton
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
