Monthly Commentary

Javier Rivaya Martos 22/02/2016 09:48:09 0 comentarios

More and more equity markets globally have slipped into bear market territory,typically defined as losses of 20% or more from the prior peak. By that definition, the global stock market, as measured by the MSCI All-Country World Index, has now entered a bear market. Many of last year’s momentum plays are among the worst performers. For example, at the lows last week, the Nasdaq Biotech Index was down nearly 30% year-to-date. As has been the case since the start of the year, the weakness is not confined to equities. Credit has also suffered, with high yield spreads — the difference between the yields of high yield bonds and those of comparable-maturity Treasuries — trading at levels last seen in the summer of 2009. European shares are now down more than 15% year-to-date, with the worst damage in southern European and bank shares. Even Japan, a relatively cheap market with a sound banking system, is getting hit. The Japanese market continues to slide on the back of falling bank shares and a rising yen. Part of the problem is that negative rates imposed by the central bank are being seen as a tax on the banking system and are not providing the expected boost.

In addition to broader concerns over global growth, plunging oil prices and tightening financial conditions, equity investors are contending with a steady erosion in earnings and future estimates. With more than half of the companies in the S&P 500 having issued their fourth-quarter results, both earnings per share and sales growth are down 5% year-over-year. With earnings heading lower and investors taking less solace from central bank stimulus — the market took little comfort in Janet Yellen’s Congressional testimony last week — stocks are struggling to find a bottom. Unfortunately, while valuations have become more reasonable, outside of emerging markets, they are not particularly cheap.

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