This year’s swift moves in equity markets have had literally nothing to do with corporate fundamentals
Nobody has issued any new results so far — although that will change over the next few weeks. It also remains the case that stocks looked massively expensive compared to their fundamentals a year ago, and appear even more so now. Does this imply that people like me who spend a lot of time pointing out how stocks have become unmoored from their fundamentals are in fact missing the point?
Michael Howell, who runs Crossborder Capital Ltd. in London. Howell is a champion of valuing and predicting markets using liquidity measures, an exercise that ignores corporate fundamentals altogether and therefore often feels uncomfortable.
But he’s not saying that markets should behave like this, merely that they do.
“World stock market gyrations over the period have been entirely explained by movements in ‘liquidity.’ The stability in the P/L ratio is remarkable and suggests that there is a consistent ‘asset allocation’ going on so that when Central Banks thrown in more cash, a set proportion goes into equities. Hence, when they take it out… whoops!”
John Authers Bloomberg 12 januari 2022
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