Investors need not panic about US stock market highs, says Rothschild Wealth Management.
Recent highs in the US stock market do not necessarily point towards doom, according to blue-blooded wealth management firm Rothschild.
US stocks have hit a succession of new price highs since 2011 but investors fear stocks may come tumbling down with earnings if and when the Federal Reserve starts to raise interest rates. Such an event has also raised concerns of a sell-off in credit and bond markets given that prices here are also nearing record-highs.
Rothschild's global investment committee said the growth of the global economy, however, would help pacify a potential slump in corporate earnings. The firm also underlined the US private sector's financial surplus as a reason to give growth the benefit of the doubt.
“We also suspect that the volatility sparked by higher US interest rates may prove short-lived. And while stock market valuations are certainly higher than they were, they are not yet especially stretched – and in this judgement we hope we’re being neither cynical nor sentimental,” said Kevin Gardiner, global investment strategist at Rothschild Wealth Management.
Gardiner used the lifting of the Swiss franc cap in January as an example, saying Swiss investors would have been wrong to react by swiftly selling stocks or limiting long-term portfolios to domestic investments.
“The franc’s surge has been partly unwound, and the Swiss economy had a bit more momentum in late 2014 than expected. The episode seems to illustrate one of the lessons from behavioural finance, namely: be wary of reacting instinctively to market moves. Sitting tight is often the best action. 'Don’t just do something, stand there' indeed.”