The interesting aspect of public markets is it exhibits characteristics that are very different from any other asset class. In real estate or a private asset ownership, investors tend to allocate incremental capital as prices tend to move up, which is a signal for the asset class doing well or a business doing well.
However, in public equities, as markets tend to make new highs (in terms of prices), it tends to bring an element of an uncertainty around the psychological behaviour of investors. The inclination of investors is to look for reasons around why the markets could fall before they allocate capital. This invariably happens because of access to daily prices that tends to play on the minds of the investors.
It’s around this time, that the conversation must shift from price to drivers of the price, namely earnings growth. In this snippet, we discuss the underlying growth numbers driving the price move and the Return on equity the underlying companies are showing to analyse the strength of the market.