Considering the intraday low of 666 recorded in March 2009, the subsequent bull run has been remarkable, and there are reasons to believe it has scope to continue.
As Alex Sebastian wrote last week, the economy is picking up nicely with growth of 2.5% expected this year, and consumer confidence is reported to be at its highest since 2007.
While a natural instinct might be to sell out while the going is good – and traders did just that after the milestone was reached – there remains a feeling that the party has only just started for corporate America as we near the end of yet another record earnings season.
“With Q2 results from companies accounting for 90.7% of the S&P 500’s total market capitalisation already in, the index’s operating earnings per share stand to hit an historic high of US $29.35,” says David Cowell, director at Myddleton Croft Investment Managers.
An ideal climate
“This would make Q2/14 the fifth record quarter for operating EPS out of the previous six. Simply put, although the slow economic expansion has been frustrating for millions of American households, it has been an ideal climate for corporate profits, with US companies as profitable as they have ever been.”
Unsurprisingly, US equity manages do not think valuations are over-extended compared to history. For Peter Kaye, who runs Fidelity American Fund, stresses it is important to consider the context of not just a robust and improving earnings outlook but an enduring environment of low interest rates.
“Moreover, the broader US economy is supported by a number of structural factors such as the shale boom and corporate confidence is at its highest for a long time as evidenced by the marked pick-up in M&A activity,” he adds.
These are themes which stockpickers may wish to exploit more readily if they want to distance themselves from the benchmark huggers. After all, the majority of funds still fail to beat their benchmark in the US, a territory where it can be incredibly difficult to find under-researched and original investment ideas despite its reputation for innovation and entrepreneurialism.
Still, I find it difficult to believe there are many investors happy to buy into a S&P 500 tracker fund in the US now, not at current market levels.
