Up, up and away! Another week, another gain in equity markets sent higher by...by...?! Well it's
anyone's guess, but let's call it "the momentum of optimism" (a good turn of phrase -and not taken
from Michelle Obama's inauguration speech!). Earning season is upon us and thus far the results
have been mixed at best. And yet stock markets have delivered solid gains following the Brexit vote
3 weeks ago. Positive equity performance has defied terrorism in Europe, war in Syria, a near-regime
change in Turkey and a Russia about to get the Hammer and Sickle from the Olympics for
massive state-sponsored doping. So what gives? Well, in our view the market does -as in give back
its recent gains once the sobering reality of disappointing earnings sinks in with investors.
To be sure, we're always happier with gains over losses, but where gains are driven by wishful
thinking, the final outcome is anything but happy. So let's enjoy this while it lasts, but let's also
remain realistic in terms of expectations. The question that needs to be asked is: how are companies
going to grow profits in a stagnant global economy? The answer to that is likely the answer to what
investors can expect from stocks for the balance of the year. It's also the answer to why we remain
committed to our asset allocation models which include government and corporate bond fund
positions. These positions may not be as exciting as stocks these days, but will be if stocks begin
moving in the direction of corporate profits.