Monthly Market Report - December 2014

26th November 2014

With commentary from David Stevenson

Global stock markets seem to have recovered their poise and fears of an impending global meltdown have abated - for now at least! The bull's case is that the US economy is - if anything - strengthening, Japan is now betting the bank on massive monetary intervention and even the Eurozone might start to slowly recover some confidence. Analysts at Morgan Stanley in particular have looked at the reams of economic data coming out of the Eurozone and argue that their "economic surprise index has bounced off its lows in the last two weeks, and our economists expect the macro data to get modestly better from here. Bank lending to SMEs is also now positive again for the first time since 2008, and the Q3 results season has been encouraging, with the highest proportion of companies beating estimates since Q1 2011." If I had to bet on the consensus view amongst equity investors, I'd wager that we've probably seen the worst of the bad news but that confidence is fragile and could easily be knocked by bad news out of China, the US or even Latin America.

The other big story of the last few weeks has been lower energy prices - I'd wager that crude oil (WTI) prices could smash past $60 barrel. Bizarrely, the current pessimism has somehow translated this good news story into a token of fear - that deflation is rampant, that the emerging markets won't have the money to spend because of lower resource revenues and that the oil economies could be fragile and cause systemic collapse. By contrast, I suspect that lower oil prices is great news for investors in leading US and UK corporates - and their equities - and is another reason to stay cautiously bullish on shares for the long term.

Download the full Monthly Market Report here.
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