“It’s a wonderful thing to be optimistic. It keeps you healthy and it keeps you resilient.”Daniel Kahneman

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Stock markets continue to creep higher, enjoying the generally supportive economic backdrop of a resilient consumer, strong employment, and an uptick in the ISM PMIs, all adding up to indicate the US economy is growing around 4% at an annualised rate. The equity market seems to be moving away from the idea that interest rate cuts are just over the horizon to drive it higher, instead basking in the pleasure of an economy that is doing pretty well despite a constrictive monetary policy. How fickle we can be.

One must also reiterate that much of the gains remain driven by a few stocks, and we know who they are. An interesting statistic I read this morning is that the All World Country Index in the past 12 months is up just under 13%, and the equally weighted AWCI is actually down just over 5%. Earnings season is underway, and overall earnings look to grow quarter on quarter from Q4 last year. The numbers are flattered by the strength in earnings from tech, defensive sectors such as healthcare, and consumer sectors less so.

We noted the weakness in Chinese equity markets over the past year, down 60% from its highs. Even they have had a better week. Once again hopes that the Chinese authorities will introduce measures to support their capital markets, apparently bringing back some bottom fishers. Currently, we have a rising US stock market and not a bear in the house; China’s CSI index, on the other hand, has been falling sharply, with bears are everywhere giving you good reasons why not to go near it with a barge pole. Was always thus

A few words on the UK economy: we have pointed out recently that although, on the surface, it is not difficult to find those who are happy to beat up on the state of the UK economy, there are further signs of something picking up. The latest service sector Purchasing Manager survey continues to indicate a rebound in economic activity.  The pound has weakened against the US dollar in the past few days. This may have more to do with a rising dollar than with negative sentiment towards sterling.