Global equities recovered most of the previous week’s losses to continue the long upward 2014 run which began in February. Overall, the bull market is now into its 65th month, the 4th longest bull market in history. Equities continue to be supported by the expectation of reasonably strong corporate earnings’ growth and low interest rates. Valuations, however, have crept up with the 2014 price earnings (P/E) multiple now trading at 15.4X and the 2015 P/E at 13.8X; albeit equities remain better value relative to other asset classes.

The global index (in euro terms) rose by 1.2% last week giving a total return year-to-date of 9.0%. All of the major marketswere up in local currency terms last week by roughly the same amount. The bellwether US market has been the top performing market so far this year.

Eurozone bond market prices were up again last week (+0.8%) and are up a staggering 11.5% year-to-date led by Spain (+14.9%) and Italy (+13.0%). The German 10-year bond yield fell from 1.20% to 1.15% last week equalling its 2013 low. Prices were supported by ongoing deflationary concerns and geo-political tensions in Ukraine. Equivalent US yields fell from 2.52% to 2.48%. Commodity prices in general were flat on the week (in dollar terms) and remain up 6.2% so far this year, led by livestock and soft commodities.

 

Source: Zurich Life

Stability Financial (House View)

While we continue to see impressive equity based returns across the table, we are beginning to see an increase in the amount of people calling for a correction, while this has no bearing on the current market price action it is something that we need to take into consideration. We have seen a solid bounce from the recent pull back highlighting the fact that there is an awful lot of big money players sitting on the sidelines looking for solid buying levels. This week we see a few of the big corporate earnings released and I believe that results will support the current bullish price action.

We continue to favour equities over bonds based on relative valuations. While we believe there is further upside and equity markets look relatively valued we would also be hesitant entering new positions at these current levels. As always we will play close attention to central bank  action, as the FED and the BOE are withdrawing some if their supportive policy accommodation the ECB and the BOJ continue with their aggressive policies.