Why investors should keep waiting for the other shoe to drop

Investors have negative outlook “fatigue” and are tired of being cautious. But a large chunk of asset price falls have been due to earnings misses, and the lagged impact of monetary policy means the risks are still out in front.

Lachlan Maddock from Investor Strategy News spoke with Talaria Co-CIO Hugh Selby-Smith on what’s happening under the surface of the current equity market strength, particularly in the US.

“One of the greatest accepted wisdoms since central banks started hiking interest rates was that those hikes have caused stock valuations to come off. But that’s not the whole story,” says Hugh.

“What happened in terms of the big 10 particularly, but also the wider market, was that they just didn’t deliver earnings,” says Selby-Smith. “If you look at Apple, Microsoft, Nvidia, Google, Facebook and go back to what the market expected in terms of earnings in early 2022 the outcome was at least double digit worse than expectations. Outer year forecasts also came down.”

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