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:
US wage growth is typically above CPI inflation due to productivity gains, but 4.1% growth appears higher than Fed’s 2% PCE target. Fed language around data was firmer, shifting from “solid” to “strong,” meaning any reacceleration in growth and/or inflation could prompt additional rate hikes in December or Q1 2024. However, short-term bumps in a downward trending economy likely keep the Fed on hold well into 2024. 2023 earnings have been better than expected: 71% of companies beat earnings and 48% beat revenue estimates so far. 2024 may prove more difficult. Earnings growth diverges notably at sector level. Economy composition very different to that of S&P500. China’s projected average annualised growth rate at 3.8% over the next 10-15 years.
Fed appears dovish and indicated that above-potential growth on its own is not sufficient to warrant another rate hike. First cut priced in for June 2024. BOE tightening cycle over and rate cuts from Q3 2024. BOJ’s move away from negative yield posture is another upward impetus on global bond yields. Diversification across geographies, factors and sectors key for investors in next decade.Market prices indicate growing probability for higher gold returns (right-tail risk), but not to same degree as Ukraine-Russia war. Project battery prices to fall to $99/kwh of storage capacity by 2025, a 40% decrease from 2022, mainly because of declining prices of EV raw materials such as lithium, nickel, and cobalt. Battery pack prices expected to fall on average 11% annually until 2030.
Underweight broad equity market but still largest portfolio allocation. Earnings expectations do not reflect macro damage projected. Recognise momentum is strong near-term. Selective DM stocks and bonds, targeting markets like Japanese stocks on the back of corporate earnings and reforms. Recently overweight Euro area government bonds and UK gilts to lock in higher yields as markets price in rates staying higher than even we expect.
Sep 2024 Benchmark rates forecast remains unchanged with US at 4.75-5.0% US, Eurozone as 3.5%, UK at 5.00%, Japan at 0.10% and China at 3.15%. Sep 2024 forecast for S&P500 at 4,500, Euro Stoxx 50 at 4,350, Dax at 16,700, FTSE100 at 7,400, MSCI Japan Index at 1,500 and MSCI Emerging Markets Index (USD) at 1,010.
Retains view that data momentum will force another Fed hike, though timing pushed back to January. Based on current analyst forecasts, investors are expecting the S&P 500 earnings to grow at 13-15% for each of the next two years, therefore implication of higher rates is overstated. Further BOE hikes unlikely. BOJ may now be focused more on adjusting the speed yield rises rather than specific level or range pegging. Disappointing manufacturing PMI and slowing services and construction PMIs in China underscore a weakening of growth momentum and poor sentiment entering Q4.
The Fed likely to be willing to wait longer to get inflation down to 2 percent to avoid a hard landing, provided inflation remains on the right track. Maintain call for one more 25bp hike in December given the resilience of the U.S. economy. ECB delivered balanced message in line with expectations, however, on the margin, focus seems to be shifting towards growth concerns as opposed to solely inflation. Investors are on track to have put $1.3 trillion into cash funds in 2023.
* 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.