Norris says the consensus view that the recovery will be anything but ‘V’-shaped is beginning to look ‘stale’ against mounting evidence that European economies are poised for a sharp recovery.
He says: “The neglected story is that real demand for most goods has suffered only a routine fall-off. This has meant that inventories in many industries have been drawn down to an unprecedented degree.
“With very low inventory levels any normalisation in demand levels, caused by pent-up demand and easier credit, is likely to be an equally powerful positive stimulus to production. This is how the recovery could be ‘V’-shaped after all.”
Norris says purchasing managers indices, which historically provide a robust barometer for future economic activity suggest that business conditions will not get any worse than December 2008 and are, in fact, improving.
He says global PMIs moving back towards equilibrium indicates the return of economic expansion and the end of the recession.
He says: “If we are correct about the strength of the economic recovery, the current second quarter earnings season is likely to be the last to see net downgrades.
“When we buy equities today it is increasingly likely we are buying trough earnings – i.e. companies which are under-earning – where we can expect an earnings rebound on normalisation of economic activity.”