After a stellar first quarter for equity investors, will the second be as good?

Stocks Drop Sharply On Tensions Between Koreas And Worries Over EU Banking
Stocks had a good first quarter (Source: Getty)

Caroline Simmons, deputy head of the UK investment office at UBS Wealth Management, says Yes.

Equity markets have performed well lately, spurred on by rising corporate earnings, strengthening consumer demand, increased company capital expenditure and higher commodity prices. Given the backdrop of improving global growth and a pick-up in inflation, we think that the positive drivers for global stock markets are here to stay for the coming months.

Looking ahead, we therefore maintain an overweight stance on global equities in our asset allocation.

We don’t believe the path of gently rising interest rates from the US Federal Reserve will have a destabilising effect. In fact, historically, equities have outperformed in periods following rate hikes.

Equities certainly aren’t cheap, but valuation is not prohibitive. We shouldn’t overlook the fact that the valuation of global equities is in line with its long run average. So long as earnings growth is delivered, equity markets have the scope to move higher. From a sector perspective, we particularly prefer energy, financials, healthcare and technology.

Tim Price, manager of the VT Price Value Portfolio and author of Investing Through The Looking Glass, says No.

No. Or more realistically, probably not, given that forecasting the markets – especially over the shorter term – is effectively impossible.

Two things have changed the outlook for equity markets. First, the Trump administration has failed to repeal Obamacare. Given widespread expectations of a raft of new US legislation on the themes of deregulation, lower taxes and infrastructure spending, the market’s animal spirits now probably need to be managed lower.

And US valuations remain sky high – Robert Shiller’s cyclically adjusted price/earnings ratio for the S&P 500 remains at 29 times, its second highest level on record.

Second, Article 50 has finally been triggered. Although it’s still early days, signs are that the UK’s withdrawal from the EU will be just as protracted and divisive as the sceptics feared. So the political outlook in Europe – ahead of key elections – looks set to be fraught.

Investors would be advised to concentrate on more defensive parts of the market.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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