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Pocketmags Digital Magazines
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Man FRM Early View

February 2019



Those of us in the UK, as the stereotype goes, enjoy nothing more than talking about the weather. February has proved a fertile environment in this regard – shifting from snow at the start of the month to record temperatures of over 20 degrees Centigrade as the month draws to a close. Financial markets seem similarly disjointed. Government bonds have continued to rise through 2019 in much the same way as they did in the fourth quarter of last year. By mid-February there was a record USD7.9 trillion of government bonds trading on negative yields, much more than at any time during QE. Looking at the bond market since the start of the year you’d be forgiven for thinking that we were in a ‘flight-to-quality’ regime – but not many of those come with an 11.5% return to the S&P 500 Index.

So what’s going on, and what has changed since Q4? There’s not much of an answer in the fundamentals. Global growth (as shown in PMIs) has been fairly weak, and the corporate landscape is generally one of falling earnings expectations (though, in our experience, this tends to lag the market rather than lead). We have pressure on both sides of the price to earnings multiple, and the CAPE Shiller PE Ratio for US equities is now back above 30x.

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