The Short View: US equity market far from spooked
The Short View: US equity market far from spooked
By Philip Coggan, Investment Editor. Copyright by The Financial Times
Published: March 14 2006 18:11 | Last updated: March 14 2006 18:11
After a fairly flat 2005, the US stock market has shown much more vigour this year, with the S&P 500 index up 6 per cent as of Monday’s close.
While the bond market has apparently become concerned about further US interest rate increases (and rising bond yields in Japan and the eurozone), the stock market appears buoyed by strong profits growth and a robust economic performance in the first quarter.
Nor has the equity market been spooked by increasing signs of protectionism in the US political debate.
Tobias Levkovich of Citigroup says: “We continue to think the broad market offers good opportunities based on our sentiment, earnings and valuation work, with short-term indicators also turning more positive. Near-term concerns about interest rates seem way overdone and while we worry about protectionist/populist moves, we have not crossed any Rubicon yet. We remain buyers of equities with our S&P 500 year-end target remaining unchanged at 1,400.”
Mr Levkovich adds that his sentiment model is in panic territory at the moment. Previous panic meetings have produced significant market gains over the subsequent six months on more than nine out of 10 occasions.
Merger and acquisition activity has been another reason for the bulls to get excited. Chip Dickson, equity strategist at Lehman Brothers, says that since 1980 there has been a 79 per cent correlation between the three-month average of deal values and the 12-month price performance of the S&P 500 index.
Given the pick-up in takeover activity last year, Mr Dickson says the equity market should be strong in 2006 (he also has a 1,400 target for the S&P 500). With corporate cash flow so strong, the market should continue to be supported.
The US equity market could also benefit if domestic investors decide to treat it as a safe haven. Retail flows into foreign markets were running at record levels in January, but in recent weeks there has been a sell-off in many emerging markets, notably in the Middle East or in risky areas such as Venezuela and Pakistan. The US saver could run for home.
philip.coggan@ft.com
By Philip Coggan, Investment Editor. Copyright by The Financial Times
Published: March 14 2006 18:11 | Last updated: March 14 2006 18:11
After a fairly flat 2005, the US stock market has shown much more vigour this year, with the S&P 500 index up 6 per cent as of Monday’s close.
While the bond market has apparently become concerned about further US interest rate increases (and rising bond yields in Japan and the eurozone), the stock market appears buoyed by strong profits growth and a robust economic performance in the first quarter.
Nor has the equity market been spooked by increasing signs of protectionism in the US political debate.
Tobias Levkovich of Citigroup says: “We continue to think the broad market offers good opportunities based on our sentiment, earnings and valuation work, with short-term indicators also turning more positive. Near-term concerns about interest rates seem way overdone and while we worry about protectionist/populist moves, we have not crossed any Rubicon yet. We remain buyers of equities with our S&P 500 year-end target remaining unchanged at 1,400.”
Mr Levkovich adds that his sentiment model is in panic territory at the moment. Previous panic meetings have produced significant market gains over the subsequent six months on more than nine out of 10 occasions.
Merger and acquisition activity has been another reason for the bulls to get excited. Chip Dickson, equity strategist at Lehman Brothers, says that since 1980 there has been a 79 per cent correlation between the three-month average of deal values and the 12-month price performance of the S&P 500 index.
Given the pick-up in takeover activity last year, Mr Dickson says the equity market should be strong in 2006 (he also has a 1,400 target for the S&P 500). With corporate cash flow so strong, the market should continue to be supported.
The US equity market could also benefit if domestic investors decide to treat it as a safe haven. Retail flows into foreign markets were running at record levels in January, but in recent weeks there has been a sell-off in many emerging markets, notably in the Middle East or in risky areas such as Venezuela and Pakistan. The US saver could run for home.
philip.coggan@ft.com
posted by Carlos T Mock at 4:24 PM
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