The outlook for the United States on a 12-18 month view is for disappointing earnings growth due to limited scope for margin expansion, Mr Minack told InvestorDaily, adding that investors are likely to see low single-digit earnings per share (EPS) growth.
“That means the real swing factor for equity returns next year in the US will be what happens to valuation,” he said.
“Were we to see a one or two point drop in [price/earnings ratios] you would probably end up with a down market next year.”
The possibility of a 2014 down market in the US is framed by the “paradox” of the Federal Reserve’s actions, Mr Minack said.
“They want people to absolutely believe that they will not list rates for the next couple of years,” he said.
“If we start to get solid growth and the market continues to believe the Fed will do nothing, then I think we will see bond yields move higher, and that’s not good for equity valuations – this is the irony.”
The Fed announced recently it was beginning to ease its quantitative easing (QE) program, reducing its bond purchases by US$10 billion a month.
However, Mr Minack believes tapering is a “second order issue”.
“I think the impact on equities of QE has been overestimated and in any case, what we are seeing is swapping QE for what is still very aggressive forward guidance from the Fed.”
