Dresdner’s Lapthorne Turns into a Bear
Andrew Lapthorne thinks stocks are overvalued:
FT Alphaville » Blog Archive » ‘E’ is disappearing, says Dresdner’s Lapthorne: DK’s global quant strategist Andrew Lapthorne has joined the cautionary chorus. “Those fond of word counts may want to search on the phrase ‘fundamentally nothing much has changed’, for as far as I can tell every person and their dog seems to be trotting this out,” Lapthorne notes. “From our perspective, if indeed fundamentally nothing has changed then equities are still in trouble as a US driven slowdown was already well underway!”
Lapthorne says that, historically, a peak in US interest rates has been associated with a peak in the US profits cycle....
US 12-month forward EPS growth expectations have turned sharply lower from around 12 per cent then, to approaching 7 per cent today....
While this pull-back is broadly-based, investors seem sanguine about prospects for profits, seeing growth moderating rather than earnings actually falling. But earnings are already well above trend in both the US and Europe, and "under pressure from lower productivity and higher costs.... [O]nce you make any kind of cyclical adjustment or look at the more static valuation models such as dividend yield or price to book, then equities look expensive. As such any decline in profits will put pressure on investors’ perception of value..."
