Amid Wild Headlines, Fundamentals Drive Stocks
Despite a fully-fledged debt crisis in Europe, the stock market continues to defy the bears to trade higher on the year.
The Dow is 4.5 percent higher on the year and just shy of 10 percent off its February low. The tech-heavy Nasdaq has done even better and even stocks in crisis-hit Europe are up for the year.
It seems that despite recent volatility, investors are still keeping one eye on fundamentals. And with strong corporate earnings, solid data from the US jobs market and a spate of mergers and acquisitions there are still reasons to buy.
And business leaders like Cisco CEO John Chambers see grounds for optimism.
“On a global basis I have never seen my counterparts as optimistic,” Chambers told CNBC. “When I called the recovery early people thought I was being too aggressive.”
Fueling Chambers’ optimism is Asia and its main growth driver, China.
“I think China has done an amazing job managing their economy, spinning their stimulus money,” he said. “Our Chinese business grew and India is also doing well.”
Others are optimistic about the prospects for Europe.
“Following this weekend’s rescue package the euro zone will settle,” Andrew Moss, CEO of UK-listed insurance company Aviva, told CNBC.com. “The plans put in place are positive and should help us get past the trauma of the last few weeks.”
Moss, whose company manages $563 billion, says consumer confidence is holding up well and is confident about the business to business market.
“Bottom up corporate earnings look robust and firms are not over geared,” he said.
Looking at the last three years it would be foolish to think we are out of the woods yet. Gold is trading at record highs as investors look for a safe haven from all the uncertainty and inflation.
"Given all the uncertainties regarding the strength and shape of the recovery, concerns about the recovery possibly slowing and the unknown extent of job creation, we encourage you to wait for additional economic data before becoming too optimistic” Chambers said.
With economist forecasting the collapse of the euro and likening the UK to Lehman Bros., governments and individuals will have to make tough choices to follow companies and rebuild their balance sheets.
“The rescue package reduces risks of a run on sovereign debt, but the credibility of the ECB is now in question,” Bryn Jones, the manager of the ethical bond fund at Rathbones in London warned. “Whilst the ECB backstop is helping, Spain and Italy could eat up the €750 billion bailout fund in just two years.”
“Austerity measures could hit growth and the inflationary impact could also be a negative,” Jones said. “Central and Eastern Europe concern me and the big unknown remains Japan.”
“People are under saved, this is true broadly across the developed world,” Moss said. “GDP growth will be subdued as people become more provident.”