We’re Uncomfortably Bullish On Equities

Do you suffer uncomfortably bullish syndrome where you agree with Jeremy Seigel but also hear Robert Shiller’s arguments and you are basically confused? If so, welcome to one of the biggest banks in the World!

If you hedge your bets, whether when investing or making bold market calls, the chances of you being wrong are slim — if you’ve hedged correctly you should always come out with minimal damage and be able to fight another day.

The problem with hedging is that while you won’t lose everything if you’re wrong, you can’t make huge gains if you’re right.

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Nonetheless, analysts at Barclays seem quite happy to sit on the fence and hedge their market call in their latest Equity Market Outlook research report.

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Uncomfortably Bullish

The report, titled “Uncomfortably bullish” notes that the current “bull run in global equities is near the strongest in history.” However, while strong markets make the team uncomfortable, valuations are not universally high across the board, which is why they’re not ready to throw in the towel just yet.

Uncomfortably Bullish
Uncomfortably Bullish

The report notes that “on most measures, the US stock market appears expensive…today’s US Shiller PE of 30x has been exceeded only twice in history: prior to the Great Depression of 1929 and the Tech Bubble of 2000.” But this premium valuation does not “necessarily imply that a collapse is imminent.”

And while the US looks expensive, other regions are reportedly more costly:

“Yet global valuations are only near the trough levels of 2003. Moreover, prospects for earnings are the most positive in nearly five years. On the face of it, the outlook appears serene.”

So what does this mean for equity investors? International investors will benefit as the rest of the world catches up to the US Barclays’ equity analysts believe. As international profit margins catch up to those in the US “our central scenario is for stability in the US market and a re-rating internationally.”

Meanwhile, in the US “comfort” factors such as GDP growth, stable inflation, and steady earnings growth provide a fertile environment for domestic investors and are likely to support valuations in the near term.

To play this trend the analysts at Barclays like Financials, Industrials, Consumer Discretionary and Energy. They’re selling Staples, Healthcare, and Utilities.

Tags: Uncomfortably Bullish

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