THE world looks a lot more dangerous than it did only a few months ago and US stock investors are starting to demand more for the added risk.
With important manufacturing and jobs data due this week, it could start to get even riskier.
That means nervous investors are likely to keep a lid on equity prices this year as they grapple with slowing global growth and a host of geopolitical risks from the Arab Spring to debt defaults in the Eurozone.
The actions of some big Wall Street banks best show the shift in the risk-reward nexus. Over the last fortnight, UBS, Citigroup and Goldman Sachs have lowered their view of what investors will be willing to pay for a dollar of corporate earnings this year.
Jonathan Golub, chief US equity strategist at UBS in New York, kept his S&P 500 Index target on hold, but increased his expectations of what S&P 500 companies would likely earn this year and next.
“Earnings are going to continue to surprise to the upside, but investors will continue to be reluctant to believe in the sustainability of earnings,” Golub said.
He argues that weak economic data pointing to slowing manufacturing, a weak housing market and stubbornly high unemployment is weighing on investor sentiment.