Economy concerns drowning value signals [HEAT]

The current market trend in equities is not inspiring reading for fundamental analysts. Investors seem to be ignoring relative values across industries and reacting on day-to-day signals on the economy.

This is in our view a clear indication of that most investors do not have a solid stance on the overall direction of the economy and accounts for the outspread nervousness documented by the very sharp movements in equity markets lately. Ignoring fundamentals in the longer run a dangerous game and you will eventually loose on this account.

However, we forecast increasing volatility in the months to come and consequently we better get used to the sharp moves in day-to-day trading in equity markets.

Looking at today’s data releases most interest should clearly be directed towards Non-Farm Payrolls. If the upstream in markets should continue well into next week we need a strong number – otherwise we will see retracement on the back of a disappointment in the labor market data from the US. In technical terms we are expect at test of 1100 and possible 1130 in S&P 500 if the labor market data comes out strong today. Otherwise expect a retracement towards the 1060-level.

Our fundamental view still stands. The average earnings growth expectation will need to be revised lower giving the sharp downward revisions in GDP forecasts. And we are not there yet, but getting there however slowly. Until this happens forward valuations will show that equities are not attractive.