Stockmarkets appear to have “left economic reality behind”, says Sam Benstead in The Daily Telegraph. Data suggests that we are heading for a massive recession, yet British and US shares are up 15% and 25% respectively since March.
Simon Macadam of Capital Economics notes that a global economic contraction of 0.5% in 2009 was enough to send pre-tax profits at the world’s non-financial corporations plunging by 45%. With a 3% global contraction expected this year, the earnings hit this time will be much worse. As of early this week, S&P 500 earnings for the first quarter were forecast to have shrunk by 16% year-on-year, with around a quarter of companies having reported as part of the ongoing earnings season, says Morgan Stanley. Yet markets seem to be looking past the current data and betting that next year will be brighter. As the bank’s Andrew Sheets puts it: “If you give investors confidence that the worst is [over], history suggests they can put up with quite a bit of bad news.”
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