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:
Base case remains DM slip into mild recessions because of “long and variable lags” of monetary policy transmission. Weaker growth helps to push inflation back towards central bank targets. Interest rates will eventually cut, albeit reactively rather than proactively, and to levels still well above pre-pandemic lows. However, interest rates cut later than market currently expects, but will fall further than predicted. Project moderate downside for stocks, with higher quality and income strategies outperforming over the next 12m. Geographic diversification key as US stocks trade at a record premium to those in Europe and EM. Positive environment for core fixed income. Expect selected alternatives and commodity strategies to outperform cash. Recent acceleration in Chinese stimulus measures symbolise a transition to a more growth-friendly policy stance. Renewable energy, electric vehicles, and advanced manufacturing, enjoying ample policy support and will be new export engine for China.
Among the 13 large economies, India's projected 2024 growth rate is the highest at 6.2%, with China in second at 4.8%. Expect US GDP growth of around 2.2%, about double the consensus rate. ECB most likely major economy to cut first and BOE least. Forecast above consensus US growth will lead to strong dollar world – recent dollar strength will therefore only decline slowly and remain elevated. 60/40 portfolios as a starting point appeal in 2024.
Underweight broad equity market as hopes for rate cuts and soft landing have driven rally – project the risk of these hopes being disappointed. However, AI theme and alpha potential has taken it closer to a neutral view. Favour granularity by geography: Japan in DM, and within EM, India and Mexico are attractive as beneficiaries of mega forces even as relative valuations appear rich. Forecast inflation staying closer to 3% in the new regime than policy targets, strong conviction for inflation-linked bonds.
Mild US recession (H124), sub 1% 2024 GDP in US & Europe, but corporate profits climb. Project S&P EPS end at $242 up 8.5%; outlook assumes $80/barrel avg. oil, stable dollar, benign credit costs at banks with a Fed Funds rate cut in June and at 4.5-4.75% at 2024 end. Profit outlook differs greatly by sector, project flat Financial, Energy and Auto profits, but up c.20% at mega-cap Tech firms, such as the Great Eight, with healthy 7-8% EPS growth elsewhere. 4700 S&P 500 target for 2024 end. Expect 10yr Treasury yields of 4.2% at 2024 end with long-term inflation expectations and breakevens at c.2.5%. Believe competitive US corporate tax rates, strong/stable dollar, normal interest rates and reshoring suggests better small vs. large cap performance. Keep foreign equities in the portfolio, search for value and lower correlations.
Expect Fed cuts to begin in June. Forecasting US and European equities to deliver single-digit returns next year as the full benefits of rate cuts won’t be felt until 2025. Earnings estimates for S&P500 companies is 5% below consensus. Forecast earnings of STOXX Europe600 companies to grow 5% next year, also below market estimates. In US, higher earnings potential for technology and discretionary spending sectors. In Europe, project higher earnings potential for banking and energy sectors, due to higher-for-longer interest rates and oil prices. Headline and core HICP inflation forecasts revised down for Euro area throughout medium term. Now expect headline CPI inflation to fall below the BOE's 2% target in April 2024. BOJ to announce exit from NIRP in April.
Soft landing remains base case. Overvalued U.S. dollar should depreciate. Remain neutral equities as below-trend real growth and low inflation should allow for some earnings growth in a soft-landing scenario, but there is still a reasonable probability of a recession. Geopolitical risks likely to remain, supporting relative attractiveness of US equities.
* 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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