Charles Stanley has said “the bears are wrong”, with strong company earnings poised to support markets in 2017.
The wealth manager said corporations had a remarkably strong earnings season in the second quarter of 2017, with the majority of results well in excess of analyst expectations.
Corporate profitability – a key driver of equity performance – stands to send markets even higher in 2017.
Jon Cunliffe, chief investment officer at Charles Stanley, said global equity markets “can make further progress over the next 12 months”.
The Charles Stanley tracker showed 74 per cent of the S&P 500 companies that had reported, had beaten analysts’ estimates by 5 per cent.
Mr Cunliffe said: “We remain overweight to global equity markets and we continue to see bottom-up data that supports this view.
"The US economy is advancing at a decent pace and tax reform from the Trump administration will likely help markets further. Equally, the story coming out of Japan is a positive one and we remain optimistic on the outlook for the Eurozone."
But other experts said price rises for stocks that outperform earnings targets might be already priced in.
Adrian Lowcock, investment director of Architas, said valuations are already pricing in outperformance. He said: “Companies have to keep their heads above water, and the biggest challenge is the consumer."
Tom Stevenson, investment director at Fidelity, said markets were already highly valued and added that sentiment “remains tepid”.
“The biggest challenge looking forward is valuations. Having ground higher for eight years, stock markets are now quite fully valued so earnings growth is no longer a nice to have but a pre-requisite for further market appreciation,’ he said.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was “impossible to tell” where the market might go in the coming months.
He said: “However fundamentals eventually assert themselves, history tells us that returns from the stock market has been the best home for long term money.
"That’s particularly the case when cash is yielding next to nothing and the 10 year gilt is offering just over 1 per cent.
"While the FTSE may be close to a record high, it’s a poor valuation measure for the UK stock market as it takes account of stock prices but not company earnings. Factoring those in the UK market is statistically somewhere in the middle of its range."
rosie.murraywest@ft.com
