Global Investing

from Jeremy Gaunt:

Micro versus macro

There is little doubt that the latest U.S. earnings season has been a good one for long-equity  investors. Thomson Reuters Proprietary Research calculates that with 67 percent of S&P 500 companies having reported, EPS growth -- both actual and that still forecast for those who have not filed yet -- has come in at 36 percent.

Furthermore, a large majority of the reports have surprised on the upside, as they like to say on Wall Street.  Some 75 percent of  reports have been better than expected.  Not surprisingly, the S&P index gained around 6.9 percent in July and is up another 1.7 percent in the first two trading days of August.

But given what looks like at least a faltering U.S. economy with little consumer confidence, some analysts  have begun asking what there is to get excited about. Philipp Baertschi, chief strategist at wealth manager Bank Sarasin, for example, calls it a case of micro bulls versus macro bears and warns that it won't last.

We expect the micro data to dominate in the short term and support a temporary recovery in the equity markets. Nevertheless, investors should consider reducing their risk positions in strong market phases ahead of the expected slowdown in growth.

Gavyn Davies, the chairman of Fulcrum Asset Management who now blogs as Econoclast for the Financial Times, reckons a lot of it  has to do with a belief that the U.S. economy is not as dominant as it once was.

Sell in May and go away?

“Sell in May and go away” — a strategy that implies that taking a good summer holiday is the best way to deliver returns — may seem like an out-dated axiom by which to manage a share portfolio, but research from S&P indicates that using a strategy this decade would have paid dividends.

Analysing the monthly performance of 16 European markets over the 10 year period from January 2000 to December 2009, S&P shows that the summer months are inauspicious for investing.RTXFFP2_Comp

Germany saw an average total return 0f 3.3 percent over the January to May period compared with an average loss of 1.4 percent over the June to August summer months, and a total return of 8.9 percent for the year as a whole, S&P says.

Fool me three times, shame on me

World stocks are up 22 percent since March 9 and a sell-off earlier this week was unable to break the trend.

“Like the old saying ‘Fool me once, shame on you, fool me three times, shame on me’, we think it’s OK to investors to be cautious, but not dismissive… We believe there is a good chance that we saw the low for this bear market in early March,” says Sam Stovall, chief investment strategist from the S&P Equity Research, in the Investment Policy Committee note.

The Comittee’s end-2009 targets are: 850 for the S&P 500 index and 675 for MSCI emerging market index.

Everybody down

Thomson Reuters proprietary research shows the estimated earnings growth rate for S&P 500 index companies in the first quarter of this year to be minus 31.4 percent. As the chart below shows, all 10 sectors that comprise the index are expecting an earnings decline relative to a year earlier.

Slip slidin’ away

Thomson Reuters Research and Estimates finds that the blended growth rate for S&P 500 companies for the fourth quarter of 2008 now stands at -28.1 percent.  The blended growth rate combines actual earnings reported with estimates of those yet to come. What a decline.  On July 1st, the estimated growth rate for Q4 2008 was 59.3 percent; on October 1st, the estimated growth rate for Q4 2008 was 46.7 percent; and on January 1st, the estimated growth rate for Q4 2008 was -1.2 percent. If the final growth rate for Q4 2008 is -28.1 percent, it will mark the first time the S&P 500 has recorded six straight quarters of loss since Thomson Reuters began tracking earnings growth rates in 1998.