Individual investors are often bombarded with specific stock calls and targets.
However, we believe you can get a better medium to long term perspective by considering asset class, sector, thematic and macro economic views.
To help you, every week, we pour through the research produced by some of the larger institutions, and summarize their market thoughts.
Below are this week’s 6 updates:
First Fed rate cut projected for June. Current bond yields offer an attractive entry point to add duration and income. Equities should remain supported as long as higher yields are driven by strong growth expectations rather than higher inflation. Private employees average hourly earnings growth has outpaced headline CPI growth, expect this favourable dynamic to continue due to resilient labour market. Typically, in election years, returns are lower, and volatility is higher because of market uncertainty. However, regardless of outcome, uncertainty is cleared and refocused on the fundamentals in all but two elections since 1936. In fact, median returns in the first three quarters of an election year were 1.9% compared to 3.1% in the fourth quarter.
Project four Fed rate cuts in 2024 (vs five previously) with a terminal rate of 3.25-3.5%. S&P500 2024 year-end target raised from 5,100 to 5,200, reflecting expectations for stronger economic growth and higher profits from the information technology and communication services sector. Forecast S&P 500 earnings per share of $241 in 2024 and $256 in 2025, up from $237 and $250 previously. Expect Brent oil prices/pb to remain in the low-to-mid-$80s this year as a result of fundamental shifts in supply-and-demand dynamics, including the US now producing as much oil as Russia and Saudi Arabia combined. Gold prices are forecast to rise 6% to $2,175/troy ounce in the next 12 months because of purchases by central banks and strong EM retail demand.
Overweight Japan stocks as project them to climb higher on robust earnings, corporate reforms and BOJ worried about returning to a chronic deflationary mindset. Watching US PCE data out this week for further signs inflation is falling toward 2% this year as forecasted previously yet expect it to rebound beyond 2024 due to stubbornly high services inflation. Predict positive US market sentiment to persist for now as inflation cools and the Fed prepares to cut rates, with AI theme to generate alpha. Short-term bonds appeal and now neutral long-term US Treasuries as see two-way risks ahead.
If Trump elected expect US govt bond yields to rise. For two years Europe's small caps have been lagging blue chips, despite good earnings and very low valuations. This might change in 2024. German covered bonds offer an attractive yield pick-up over German government bonds. Indian market has a below-average correlation with developed economies and offers attractive return potential with expected real GDP growth rate of 6.3% in the medium term.
January FOMC meeting minutes and Fedspeak indicate Fed in no rush to cut rates. Activity in Europe improving, even if very unevenly between countries and sectors, however, hopes of a sharp activity rebound and fears of second-round effects from wage growth to inflation are not supported by the data. The UK composite PMI points to slightly better performance in Q1 than expected, while the manufacturing index remains in contractionary territory. The better LNY holiday data suggest some sequential recovery in China for Q1, though real estate-related downturn remains concerning. Bank of Korea policy rates unchanged despite more dovish details than expectations. Turkey’s central bank delivered more-hawkish rhetoric and signalled no change in its FX policy whilst keeping stable policy rate. Latin America inflation convergence advanced, predict strongest declines in countries furthest from target.
Last weeks Fed minutes illustrated upside inflation risk concerns, however, overall Fed mindset is in easing mode this year. ECB minutes had a hawkish tone, with a focus on wages as expected. China stimulus continues coming piecemeal despite the recent policy easing, while consumer and business confidence remain depressed. In all cases, policymakers rely on the option value of waiting before deciding their next policy move. There is raised confidence in a soft landing at the global level, with more-resilient-than expected emerging market economies and government efforts to boost the flailing Chinese economy. If soft landing achieved, Small-caps may continue to gain momentum. In anticipation of November election vote, anticipate boost in Defense spending globally.
* Please note these are not the thoughts or analysis of illio but the respective institutions. We have summarized what we believe are key points. We assumes no responsibility or liability for any errors or omissions in the content of this site. The information contained herein is not intended to be a source of advice and the information contained in this website does not constitute investment advice.
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