Yes, this is one of those times when I get as close as I ever do to those folk who issue Tweets they either wish they had thought more about, or which everyone else wishes they had thought more about. I don’t use Twitter, because I am by nature an exponent of the long way round with words, except when it comes to music lyrics.
I am going to rant a bit, but in a hopefully educational way.
Today Morningstar sent me an investor bulletin. In it they point out the useful and interesting fact that dividends grew very healthily last year in all the major global markets. Any investment professional knows that the cardinal driver of share prices is dividend growth, so that suggests share prices at what otherwise seem to be rather high levels based on macro economic and historic data might well be justified.
On the same page, they say US shares are overvalued and that it is a good idea to sell overvalued shares. In that article they go on to say that they are NOT recommending selling US shares. They also say (correctly) that you should never sell shares on the basis of news headlines. In their view tariffs won’t impact the US market as the US has a high domestic focus and is not too much impacted by international trade, so ignore that news. Might one ask why the US President is imposing tariffs in the first place if that is true?
A rational line of advice might be this: current shares prices are high because we have seen (past tense) excellent dividend growth. In a world where tariffs will have some impact on local costs (absolutely without doubt) and there is full employment and pressure on wages in many producer countries and also rising interest rates, profits will grow less, dividends will grow less or even get cut and share prices will indeed look expensive.
I am relatively pessimistic, which as I am naturally an optimist, means that for me I am very concerned about current share price valuations in many places. But there will be buying opportunities, something Morningstar does point out to give them credit. As I have been saying for some months now, holding cash patiently is a good tactic.
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