Willerequity North America p

Geneva, 6/05/2013 – There has been much discussion in both the investment community and the broader media, on the topic of US-industrialization with a consensus forming that the revolution in shale gas/shale oil production and rising China labor cost will lead to a renaissance in US manufacturing activity. A recovery in the Industrial Production/GDP multiplier over the 2010-2012 period has already indicated a pick-up in the US share of global trade. This provides some evidence that the off-shoring trends have moderated significantly. While companies involved in exploration of shale gas/shale oil will eventually benefit, the manufacturing base may be the first to experience a genuine lift to the bottom-line. Thus any improvement in US economic growth, coupled with the possibility of lower corporate taxes would lead manufactures to bring more capacity on-line in the US. This would likely lead to a surge in capital spending. While this effect is more longer-term than short-term, it may be the catalyst that leads to improvement in sales growth. With more than 50% of S&P 500 countries having reported first quarter numbers, it was clear that sales growth has slowed. Earnings growth remained solid, but of the companies reporting by early May only 29% exceeded expectations on both sales and earnings growth.

Current consensus earnings forecast indicate a CAGR of 10.5% for the next 3 years. In terms of valuation, the S&P 500’s price/earnings ratio has climbed from 12X in September 2011 to 15.8X currently. However, the current PER is still at a discount to the historical median of 16.8X, dating back to 1955. The current discount seems reasonable given the continued intervention by the central bank. The valuation of the US equity market is not excessive compared to its historical tendency.

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