Don’t lose the faith in equities, says Rowan Dartington’s Stephens

It is very easy to be sceptical about equity markets, especially so soon after the biggest debt crisis in living memory, says Rowan Dartington’s managing director Guy Stephens.

Markets are currently trending sideways. Economic doubts have set in, there are concerns regarding valuations, geopolitical events in the Ukraine and lingering fears over the Chinese banking system.

In the US, the newswires have been full of weather related explanations for weak housing data and first quarter GDP growth of 0.1 per cent. The markets have remained relaxed but haven’t made any progress as frothy technology stocks have sold off and some IPOs have come in for a drubbing as ‘irrational exuberance’ appears to be back.

We would say, keep calm and keep investing as it all comes back to the fundamentals. We invest in businesses for profits and dividends, not media sound bites and political ambition. This is today’s noise to be replaced with tomorrow’s noise, always present but not the key to fundamental company value.

Friday’s US unemployment payroll report for April surprised most at 288,000 compared to forecasts of 218,000. This gives a six-monthly moving average of 202,000, one of the strongest readings of the recovery.

Most forecasters believe second quarter GDP will exceed three per cent, making up for the weather related poor first quarter reading. Many an investor has looked in the rear view mirror at market chart, winced at the p/e, considered the media noise and remained in cash.

In today’s social media inspired world, the noise is greater than ever, the ‘e’ of the ‘p/e’ is often massaged down to protect the CEO and we are told that past performance should not be taken as a guide to the future.

Be careful with the view of the sceptics – whilst the wall of worry remains, don’t lose the faith in equities.

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