This from a research note from the investment bank, saying yes there are risks ('high risks') but sustained falls .... not this year
GS have a proprietary indicator - the Bear/ Bull indicator - which is
currently above 70% - a level normally associated with high risks for equity investors
But, says the bank,
We do not believe that this is consistent with an imminent bear market because of the wide spread in the underlying variables
- Current very low levels of unemployment and strong growth momentum would normally be associated with other risks - in particular tighter monetary policy, a flatter yield curve and rising core inflation. But these remain subdued and without these risks rising, the prospect of a recession and 'cyclical' bear market is low.
- Structural bear market risks are also modest given the absence of major financial imbalances - or at least the shifting of imbalances away from the private sector to the public sector and central banks
- Slower growth and higher rates prospects point to lower risk adjusted returns this year but not a sustained bear market
- Valuation is a contributor to the index and is becoming less of a risk. The correction has resulted in a 5.7% de-rating in global equities YTD. The forward consensus PE for the MSCI AC World is back to its 1990 average and below its average ex Tech
- Elevated valuations are evident across most asset classes. Equities remain attractively valued relative to bonds (Equity risk premia are still elevated)
- High equity valuations are mainly a feature of the US equity market and much of this can be explained by sector exposure and relative ROE.
- Valuations also need to reflect the impact of share buybacks. The total cash return (the dividend yield plus the buyback yield) has increased in most markets despite collapsing bond yields post the financial crisis.
- Free cash flow yields have also increased alongside higher P/E ratios. Companies are generating higher cash flow with less traditional capital expenditure making cash flow measures perhaps more important than in the past.
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Sounds good .... but I dunno.
I am on very heightened alert for a bear market from the ES (that's me) model:
- Wild swings
- Volume up on the downswings, down in the upswings
Its the KISS model, innit?
;-)
