The wealth manager said even though markets have hit record high levels so far in 2017, a healthy outlook for corporate earnings, particularly in the US, Japan and Europe, will send them higher still.
On Wednesday the S&P 500 set a record of 15 days without a closing move bigger than 0.3% in either direction – this is the longest flat run for 90 years and came despite a backdrop of escalating tension between the US and North Korea.
But Charles Stanley said it remains overweight global equity markets, supported by its own data that shows corporations had a remarkably strong earnings season in the second quarter of 2017, with the majority of results well in excess of analyst expectations.
It said the US had the largest proportion of companies that beat estimates in Q2, aided by a weaker dollar and improving growth momentum. Of the 84% of S&P 500 companies that reported, 76% have beaten analysts’ estimates, with aggregate earnings beating estimates by as much as 5%.
Elsewhere, Japan had the strongest overall performance as companies delivered 43% earnings growth, year-on-year – 18% above market estimates. Some 65% of companies listed on the Topix have beaten estimates.
In Europe, companies came under pressure from a stronger euro, but earnings still grew by 23% at the index level and earnings expectations for the full year are high. Some 60% of eurozone stocks have reported Q2 earnings, with 56% beating estimates by 7%.
Jon Cunliffe, chief investment officer at Charles Stanley, said the data shows that the “bears are wrong” and the global equity bull market is far from running out of steam.
He added: “The US economy is advancing at a decent pace and tax reform from the Trump administration will likely help markets further. Equally, the story coming out of Japan is a positive one and we remain optimistic on the outlook for the eurozone.”
Charles Stanley said in the UK earnings growth is healthy, running in the mid-teens, despite very few companies report earnings in Q2 and the heavy skew towards energy stocks.
On a valuations basis, Asia ex Japan continues to be cheap compared to other regions and is expected to be one of the top earners over the next 12 months, the wealth manager said.
Cunliffe added: “We have not yet heard from all companies but the earnings momentum is impressive so far. As it stands, growth in the second quarter is at its highest level since at least 2015.
“A lot will depend on the actions of the central banks throughout the rest of the year but we believe that the global equity markets can make further progress over the next 12 months.”
