“Higher commodity input prices are putting pressure on margins, while a greater share of household spending looks set to be directed towards essentials such as food and energy.
Set against these fundamentals, we suggest that valuations remain expensive, said Scott.
“The global consumer discretionary sector trades on the same price/book multiple as the global oil sector. In May 2008, with crude at similar levels, it traded on a 35 percent price/book discount compared with the oils,” he said.
If you are looking for a profit, then Scott believes it makes sense to look at sectors and companies where merger and acquisition activity is in play.
”Although M&A intensity is still rather low in Europe, we think the fundamental backdrop is supportive,” he said.
“Low interest rates, strong balance sheets and low equity multiples all support the case for M&A activity, while the stock market has been rewarding those companies recently engaged in corporate activity,” said Scott