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 3 updates:
US recession remains base case despite risk likelihood falling from 80% to 65%. Now anticipate time shift from H2.23 to Q4.23/Q1.24. Moreover, recession depth forecast shallower with US peak-to-trough decline recedes from 1.4% to -1.1%. Growth forecasts remain below consensus. Inflation projected to fall more quickly than market anticipates, as it has done in recent quarters. Financial markets believe Fed rates terminated, however, when central banks historically engineer tightening cycle, pause, and then recommenced tightening (as Fed recently did), 80% probability that more than a single rate hike follows.
Fed and ECB stressed further rate hikes data dependent, but BoE retains modest tightening bias. Market currently pricing in too many BoE hikes after recent inflation decline, thus bullish sterling. Less positive on Germany, Eurozone moved to small underweight. High US valuations not a concern because IT and consumer discretionary are the sectors with the most rapid earnings upgrades. Upgraded US financials to overweight with cyclical tilt. Maintain diversified Asian approach, overweight China, Hong Kong, Indonesia and Indian equities. China’s relative valuations remain cheap and under-owned. Chinese policy stimulus, better anticipated earnings and economic growth should all lift stocks in H2.
Inflation trajectory will have higher impact on bond demand than recent downgrade to Fitch's US credit rating. Base case; US ten-year Treasury will return over 10% by mid-2024. Equity markets in classic policy driven late cycle rally. Alternative scenario, new cyclical upturn with sharp growth reacceleration, requires business cycle indicators to inflect and falling short term interest rates. Uncertainty surrounding recession depth indicates that sectors playing catch-up appeal, including healthcare, utilities and energy. Japan equities preferred due to positive GDP growth and increasing revenues. Residential housing market continues to face limited inventory, low affordability and high mortgage rates, but worst has passed.
* 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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