Interesting point of view on recent market sell-off. Apparently, now the disconnect goes the other way around…
From equity strategy team led by Ian Scott (most interesting piece of analysis underlined in bold by us):
« With the European market down 12 ½%, the last month has been tough to bear. Economic growth expectations have come down a bit, and incoming data have disappointed, but the stock market appears to us to have overreacted.
Investor positioning and fund flow may explain things: having bought heavily in 2013 and early 2014, investor sentiment has now swung full circle.
Fundamentally, for the first time in over three years, 12-month forward consensus estimates for both sales and earnings are rising and our own assessment suggests that the decline in European currencies will offset the lowering in domestic growth.
Relative to credit market yields, European stocks are now more cheaply priced than at any time in at least the last 15 years, which suggests investors have adopted a very different view regarding the sustainability of earnings.
Within the market, the premium paid for safety is close to prior peaks and cyclical sectors have been in the vanguard of the sell-off. This too looks over done to us. »