We think equity valuation multiples are, generally, back to long-run median levels. This means that the first-quarter 2016 results season, starting soon, is key for sustaining the recent equity rally.
Equity markets have swung dramatically over just a few weeks, bringing out the world’s central banks in a bid to bring calm. Little seems to have changed fundamentally, but for market participants, the forces that are shaping the medium-term cyclical outlook are hard to gauge: China, energy markets, and central banks. With valuations back to long-run median levels, equities are back in search of positive earnings revisions – which make the first-quarter 2016 results season, starting soon, key for sustaining this recent rally. That is why we look for a continuation in high dispersion in returns at the stock level but a low overall beta return from the broad equity market.
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