It would seem that essentially last year investors finally began to believe that an economic recovery was underway. Without a crystal ball it is impossible to see what is in store for the rest of 2014 but there is defiantly a stronger global economy. The US and UK are building momentum, the EU is climbing out of recession and into growth even if it is slow. Many think Asia should begin to re-accelerate. Liquidity is still fairly abundant in the financial system and while stimulus is likely to be trimmed (QE tapering), the Fed is expected to counter this with strong forward guidance – assuring the markets that interest rates will stay at rock bottom levels for the next few years. As Mark Carney has done recently in the UK. Another factor is that the corporate sector having bee understandably cautious for the last 5 or so years has quite a lot of cash floating around. Rather than invest their profits in expansion, companies have been distributing record dividends or simply allowing cash to pile up. Data from the Bank of England at the beginning of the year showed that the bank deposits of non-financial corporations rose more than five-fold from £76 billion at the end of 2008 to £419 billion by July 2013. If businesses put that money to work, we see huge scope for profit upgrades.
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