US and European equity markets

Clever investors had the potential to make substantial gains last year as stock markets worldwide rallied in anticipation of the global economy climbing out of recession and market confidence began to return. But the outlook for equities in 2010 is much foggier, warns the firms economists.

And there is some evidence that the US and central European stock markets are overvalued, says the firm's Macro Consulting team in its report US and European equity markets.

The research reveals that the UK’s FTSE 100 rebounded from an exceptionally poor 2008, gaining over 22% in 2009 – a pattern reflected in all other European indices analysed by the team. The smallest gain came in the Swiss Market Index (18.3%) and the largest on the Swedish OMX Stockholm 30 Index (43.7%). Meanwhile, the S&P 500, the large-cap US equity price index, recovered in 2009 to post a yearly gain of over 23%.

Yael Selfin, head of macro consulting, says: “These encouraging figures should not lead to an underestimation of the lasting impact of the financial crisis. By the end of 2009, the S&P 500 was still 21% down on its level at the start of 2007, and none of the nine indices we analysed have yet to return to their January 2007 levels.”

But what is the picture for 2010? Modest growth should continue in the coming months, but stock prices are unlikely to rise at the pace they have achieved in the last nine months.

“The second half of the year will see an increased risk of stock prices falling again, as the markets react to the unwinding of the emergency fiscal and monetary measures put in place during the recession,” says Yael.

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