Equities to disappoint short term

After recovering much of their early year loss by mid-March, equities have lost ground again, slipping back to levels not seen since October. Year-end record highs now seem a long time ago and despite recent volatility and techmania the overall index is not much more than it was two years ago. Nonetheless, we expect the FTSE 100 to reach 7,000 by the end of the year (equivalent to 3300 for the All-Share), a level broadly consistent with fair value as measured by the equity yield ratio, based on our expectations that bond yields will fall to 5% and corporate earnings will grow 10-12%. In th...