Second half more optimistic for equities

The second half of the year may be more upbeat for equities than many industry commentators are currently predicting as they are too much focused on their ‘favourite data points’ to figure out the future.

Insync Funds Management’s recently released white paper “Will the second half and beyond for equities be different to the first?” identified the five common assertions that contributed the most to stirring up pessimism among the investors.

“We respond to each of these assertions with a counter view backed up by facts and observations critical to the likely future outcomes of each assertion,” Insync portfolio manager, John Lobb, said.

The first assumption was that carbon energy prices would continue to rise to which Insync said that, according to its analysis, the prices were not likely to either significantly increase or decrease at least for the next year.

Many investors also worried that global transport costs had skyrocketed and would continue to force supply chain cost increases but the evidence suggested that shipping cost price hikes were mainly Covid-related.

As far as reshoring back to the West was concerned, investors feared that this would mean higher prices but Insync said that most of evidence contradicted this assertion.

“It comes down to what is being re-shored (including near-shored), and most goods are mainly higher-value complex goods (such as technology),” the report said.

The market evidence also suggested that the US economy was unlikely to contract to the degree it did during the 2020 pandemic lockdowns, the 2008/09 Global Financial Crisis (GFC) or the early 2000’s recession.

However, the resumption of rising rates was firmly established and so far, markets had suffered a valuation de-rating, from fear of consistent high interest rates but equity markets had a lot more upside risk than downside risk when factoring in interest rates.

“The economy continues to evolve and there is little doubt that the last two years will cause a further change to its operating rhythms,” Lobb said.

“However, even though the economy is complex, industry participants tend to rely upon a few favourite data points to figure out the future. Additionally, the focus of commentators tends to coalesce around the consensus view of an issue. We argue that this kind of approach is fraught with danger.”