Markets have performed strongly year-to-date with US shares reaching a new high at the end of July. Investors have been prepared to look through the sharp deceleration in corporate profit growth in the expectation of an improvement in 2020 once supportive monetary policy kicks in. This optimism has pushed valuations towards the top end of their normal range, leaving them vulnerable to disappointing news. An estimated 3% increase in global earnings this year looks reasonable, but 10% growth for next year appears optimistic. We have become slightly more defensive in our stock-picking in recent months while retaining a focus on quality companies generating strong free cash flow.
Source: Quilter Cheviot
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