Wednesday, 8 February 2017

Markets mixed amid increased risk aversion and overvaluation

Markets were mixed on Tuesday.

The S&P 500 was flat, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 fell 0.4 percent.

Peter Andersen, chief investment officer at Fiduciary Trust Co, thinks that “if you set aside the political aspects, we’re very positive on the health of U.S. companies, with corporate earnings, and with U.S. equities in general”.

However, Karyn Cavanaugh, senior market strategist at Voya Financial, sees “a more risk-averse market”.

Indeed, Ernesto Ramos, head of equities at BMO Global Asset Management, told CNBC that the market is in a “fragile spot”, with all the potential positives from a Trump administration already priced in but very little of the potential negatives.

Meanwhile, another report by CNBC reminded us that the US stock market is overvalued.

The report noted that the total market cap of the Wilshire 5000 index as a percentage of US gross domestic product is about 120 percent, far above the 45-year average of 75 percent.

Mark Tepper, president of Strategic Wealth Partners, pointed out that “even if we were to see exceptionally fast growth over the course of the next eight years to the tune of 8 percent nominal GDP growth per year, we would still be at 80 percent market cap to GDP, which still puts us above that long-term average”.

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