Back to the future – every silver lining has a cloud?

András Cserháti
Senior Product Manager

The recession isn’t over, just (possibly) about to turn w-shaped

The various market analysis firms are publishing their opinions thick and fast, to the effect that we are now very close to the end of the global recession. Equity market analysts, often rushing to ‘outbid’ each other, have begun to raise their forecasts for corporate profits, which (looking at just the numbers) really is good news, as this is something that we have only been able to dream of since April 2007. The buoyant predictions are partly due to the fact that 75% of companies that have posted results so far in this flash reporting season published figures more favourable than the analysts’ consensus. So it comes as no surprise most of them have raised their year-end target for the S&P 500 index to around 1050 points, from its previous value of 900. Many base their predictions of an end to the bear market on the likelihood that the macroeconomic picture could improve in the second half of the year, as companies rebuild their inventories and the real-estate market stabilises. Certainly, appetites for risk and investor confidence indices are returning to normal levels, and based on their P/E levels many of the equities markets can be regarded as inexpensive (although many others, having risen unbelievably since the beginning of the rally, are downright pricey), and due to the low inflation there is no reason to fear a tightening of monetary policy.

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