Record equities highs raise fears a correction is looming

Added 16th February 2017

World markets may have hit record highs on Thursday but some professional investors fear a correction in prices is waiting in the wings.

Record equities highs raise fears a correction is looming

At the opening bell, the MSCI All Country Index hit fresh highs on Thursday morning, reaching 444.22 on the back of optimism over President Donald Trump’s policy promises and hawkish comment from Fed chairman Janet Yellen on Wednesday.

The Dow Jones soared past the 20,600 mark, while the S&P 500 opened 0.06% higher and the Nasdaq index opened 0.14% higher than Wednesday’s figures. The FTSE 250 also continued on its week of consecutive daily gains.

Jason Broomer, head of investment at Square Mile, said the markets’ rise was based on good fundamentals in the economy: “We are actually seeing quite good earnings expectations this year, last year earnings were quashed by the collapse in energy prices, but it’s possible we’ll see decent double digit earning per share growth this year.

“I’m a bit of an optimist on the economic outlook, not for the UK but for the world, and markets seem to have an optimistic tint to them.”

Markets have rallied on the back of Donald Trump’s promises and recovery in Europe Broomer continued, but he warned they might “leave people disappointed” and projected a 10% correction in markets by summer.

James Thompson, manager of the Rathbone Global Opportunities Fund, agreed markets were due a correction as “Trump-mania is likely to fade”, or at the very least there would be a continuation of the rotation from value plays into more growth stocks.

He said: “We think equities could correct soon, but the main feature would be a change in market leadership. In fact a rotation out of the ‘value’ reflationary plays into more reliable ‘growth’ stocks has already begun.  We are frequently questioned about the high valuation of equities – most developed markets are trading at a 10-20% premium to their 10-year average. This tells us that the market is clearly expecting improving economic data to drive significant earnings upgrades.

 

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