Emma Wall: Hello and welcome to this U.S. special. I’m Emma Wall, and here with me today to discuss whether the stock market rally in the U.S. is sustainable is Felix Wintle, manager of the Neptune U.S. Opportunities Fund. Hello, Felix.
Felix Wintle: Hi, Emma.
Wall: So can the S&P keep on going?
Wintle: Well, we think so, very much so and the reason for that is, yes, we are all-time highs. But when you measure – when you look at the fundamentals of the market today and measured against the previous cycle highs, which is 2007 and 2000, you see a picture which gives you great comfort that it is sustainable. So we’re at a cheaper P/E, for one, but much more importantly, today you've got a broad set of leadership. So if you go back to 2000, that was all tech; 34% of the S&P was tech. If you've got a rally based on one sector, it's pretty unsustainable, and obviously tech boom…
Wall: It was.
Wintle: It was, exactly. Tech boom became tech bust. Then you had '07, which was all about commodities, massive boom market in commodities and we all that know that commodity boom markets always end, because they are ultimately cyclical and commodities aren’t really an asset class. They are just stuff which is going up because the price is going up. So you had commodity boom, but also massive credit boom. So, the housing market, the States went crazy. Again, sort of it was all based on a massive credit bubble and a huge commodity bubble, which is clearly not sustainable and we all know that…
Wall: Global recession, yeah.
Wintle: Right. Today you've got a completely different picture. You've got commodities, for one, falling quite dramatically, so gold, oil, copper, you name it, all the agricultural commodities as well. So that’s quite positive. But you've got leadership from financials, you've got leadership from industrials, you've got leadership from healthcare, consumer discretionary; all the sort of sectors which you want to see leading a sustainable recovery.
Added to that, you've got historically low levels of leverage. So all the advancements that the stocks have made and the index has made have been on no leverage. So it's not like in the old days in '07, where people were just borrowing money to spend. That’s just not happening today. Bank lending is conspicuous by its absence. So that makes us feel very good about where the market is and we feel very confident – I mean, we’re a whisker away from 1,800. I don’t think many commentators would have expected that at the beginning of this year. So the market has taken many people by surprise and I think it's going to continue to do so next year and in the out years.
It’s important to remember also, are people – is being long the equity market and consensus long. Is everyone in the equity trade? I think the answer to that is absolutely no. I think there’s a lot of space. I mean, back again in '07 and 2000 – I mean, back in 2000, I was an assistant fund manager back then, and I remember the phone was ringing off the hook, people just wanted to buy tech funds. In '07 people just wanted to buy commodity funds. Today, people are thinking about maybe I will sell some bonds, maybe I'll buy some blue chips. There is no crazy rush to get into equities, yet we're above the levels we were up previously. So every way, every which way you dice it, I think the market looks in extremely good health.
Wall: Felix, thank you very much.
Wintle: My pleasure. Thank you, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
