Strong start to 2010 bodes well for equities

US equities got off to a strong start in January, boosted by better-than-expected ISM manufacturing data, the US unemployment rate and corporate earnings results.

The second half of the month also saw a continuation of strong corporate and economic newsflow, and, at month end, the US reported stronger-than-expected 5.7% annualised fourth quarter GDP growth. However, markets looked through the strong flow of data and paid greater attention to the potential implications of monetary tightening in China, sovereign risk in the euro area and President Obama’s banking reform plans, resulting in a sharp sell-off in the second half of the month. Recent market volatility should not come as a surprise. In fact, we have been anticipating a set-back for a w...