9th October 2015
Corporate earnings season is upon us and in preparation, Miton’s Anthony Rayner is reducing stock-specific risk in the US and taking a more defensive approach.
Rayner, co-manager of Miton’s multi-asset fund range, said markets are heading into ‘what might prove to be one of the most insightful corporate earnings season for some quarters’ due to increased corporate stress, emerging market sovereign stress and volatility in equity markets.
He said ‘all roads lead to the US Federal Reserve’ at the moment and ‘lack of policy visibility has been adding to financial market stress’ as it is unclear which data the Fed is relying on to change policy – domestic or overseas economic data, or the broader health of the financial system.
‘Ironically, visibility might have increased very recently as all of these areas have worsened of late, with both domestic and overseas data slowing and…financial stress increasing,’ said Rayner.
However, the backdrop of slowing global growth ‘can only be good for markets if the ‘bad news is good news’ thesis and Fed credibility hold’, he added.
‘Either way, sustained elevated financial distress is unlikely to allow markets to move ahead,’ said Rayner. ‘The Fed will have a beady eye on the US corporate earnings season, especially the read across from the macro to the micro, gauging the impact of China slowing, the lower oil price and the stronger US dollar.
‘This quarter’s season is likely to be the weakest for some time, although it might prove better than expectations, but only as expectation have been downgraded so much.’
He said as a result ‘it is unclear as to how much support this will provide to equity markets, especially those on loftier ratings’.
Miton has been ‘concerned for some time about financial markets’ and noted the ‘equity ‘bull’ market is getting ever narrower’ and led Rayner to take a defensive approach.
‘As some of the pillars holding up equity markets appear to be crumbling, we remain broadly defensive, with a low equity weight, and have been reducing our stock-specific risk in the US, ahead of the earnings season,’ he said.
‘As ever, our pragmatic approach could see our positioning change if circumstances change, for example, we get better Fed visibility or financial conditions improve.’