"We think investors will need to sell developed-world equities at some stage this year, but we're still not seeing the signs that we should sell now. We nominated 1,200 as our stretch target for the S&P 500index in the middle of last year. Yes, we've noticed that' snow close. But seeing the warning signs is more important than sticking to a precise level. Moreover, earnings strength has surprised us. Earnings are central to our caution, so we're reluctant to sell when the earnings fundamentals appear positive. "
"We have been skeptical about the consensus forecast for non-financial margins, but it's now clear that much of the forecast increase in margins has already been accomplished. Net margins (excluding financials) are now above average. The rapid improvement has been due to the rebound in non-IT margins shown in Exhibit 5. This is the micro counterpart to the tremendous productivity growth captured by macro data."
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