Why investors should stay cautious on US data

ON NORTH AMERICA

Commentary on the US equity market is currently focused almost exclusively on emerging economic data. Analysts appear keen to pick from the entails sufficient signs that the economy is finally emerging from its sedentary rate of growth.

Apparently this would be a perfect backdrop from which to expect strong growth in corporate profitability and further rises in US equity prices. We believe this obsession with the overall economy is leading to some false and dangerous conclusions. Despite some slightly improved economic data, US corporate profitability has deteriorated in recent quarters, but it remains well above historical norms. The long-held belief that profitability mean-reverts has been seriously challenged over the past decade; but believing in new paradigms often has painful consequences. Globalisation and its...