Better-than-expected trade figures stemmed the drift in equity prices and on Tuesday the tone was much better.
Meanwhile two influential firms of brokers have circulated their view on the longer-term prospects for equity prices. First, Hoare and Co: it expects aggregate company profits in 1967 to be about 2 per cent below those for 1966, a recovery in the fourth quarter follow- ing nine months of setback. In 1968, Hoare reckons that aggregate profits should be about 4-5 per cent above those for 1967. It names five factors, in its view largely transitory, which have pushed equity prices up. The downturn in earnings seems to be less than in previous crises. Devaluation fears (hopes?) have led to investment in equities as a hedge. Institutions, under-invested in 1966, are now catching up. There is a widespread belief that growth will be resumed towards the end of this year. And finally there has been the release of £500 million or so of steel funds. Hoare finds none of these factors substantial. It says there seems every likelihood of a change in expectations. On this analysis equity prices are unnervingly vulner- able. Second, Phillips and Drew: it finds that institutions are buying 'neither with the heart nor the head,' but reluctantly taking what is available in order to maintain a set proportion of their funds in equities. Its advice is that until the outlook is clearer, investors should duck the big decision 'should I hold cash or should I invest?' and content themselves with buying in a highly selective manner.