Investment Newsletter October 2015
Phantasy Stock Markets Neal Foundly Investment Analyst
Such spirits could be operating in the stock markets.
Despite this, the Index went up 75% in this time. In other words, profit expectations are unchanged over the last 5 years and yet the global stock market rose at an annual rate of around 10%.
Any finance textbook will tell you that stock markets rise as the expectations for future profits rise. As economies recovered from the credit crisis in 2009, this is indeed what happened.
Why has the stock market continued to go up when profit expectations have flat-lined? What invisible forces are at work here?
Halloween is a time when spectres reveal themselves and shadowy forces menace.
By the end of 2010, within a couple of years into the recovery from one of the worst recessions in a century, the forecast post-tax profits for the MSCI World Index (an index of the largest companies in all the major markets around the globe) were 28p per share. A year later, at the end of 2011, the forecast earnings were 27p per share. At the end of 2012 they were still 27p and this has continued each year up to today when the forecast earnings are still around 27p. Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.