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:
Recent Fed commentary does not change base case of three rate cuts starting in June. Investors should manage liquidity via combination of fixed-term deposits, bond ladders, and certain structured investments, and lock in still-elevated yields. Quality bonds, including government and corporate investment grade, have attractive risk-reward because yields offer an appealing source of income, yields are expected to fall this year, and potential diversification benefits. Recent underperformance of US technology stocks does not alter positive outlooks around AI-related stocks, this is because of broadening demand trends, new revolutionary products and increasing adoption. Latest oil price increase has been driven by renewed geopolitical concerns, but market fundamentals have also underpinned the rally. Oil prices should remain well supported in the near term amid a slightly undersupplied market.
Fed officials view stronger jobs data as good supply side news, therefore base case remains 75bp of cuts this year to begin in June. Positive outlook on earnings, S&P500 EPS to beat current estimates by more than 6% after a 4.2% beat in 4Q23. Since 1997, net positive results from Q1 earnings have been sequentially better than Q4 results 81% of the time.
Expect Fed 50bp rate cuts this year (Jul and Dec), followed by 2025 quarterly rate cuts. US Recession risks likely to linger, but front-loaded in the year. Disinflation should resume, but last mile issues remain due to slower wage growth moderation, less goods disinflation and stabilizing rent/OER. Euro area core inflation still above target through 2024-2025 but with services inflation starting to slow. Expect a slow recovery in GDP in 2024 with growth of 0.1% q-o-q in H1 recovering to 0.3% q-o-q by year-end. Forecast 25bp ECB cuts each meeting from June until the end of 2024 (to 2.75%). Expect a slow recovery in UK GDP growth. Lower energy prices, base effects and slowing momentum should help pull inflation down further, though core delayed. BOE turning dovish, forecast 25bp rate cuts in each meeting from Aug 2024 to Feb 2025 (to 4%).
Soft landing remains base case at 60%, and risk of recession trending lower with some signals reversing, but no formalized likelihood number yet. Continue to believe June or July is the most likely timing for Fed rate cuts. Remain bearish on USD dollar, with outlook premised on long-term headwinds. Predict USD decline caused by the currency’s overvaluation, a reversal of capital inflows and the erosion of US fiscal credibility. Expect EUR and CAD to be early beneficiaries, while the YEN and GBP lag. EM currencies initially held back by central bank rate cuts but will eventually be buoyed by widespread USD weakness.
The outlook for economic growth and earnings is improving. While inflation data have seen some mild upward surprises, March meetings of G10 central banks were generally dovish - synchronised message to markets that policy pivot is approaching. That combination is positive for equities, and therefore further increase existing global equities overweighting. Upgrade Europe ex-UK from mildly underweight to neutral. Maintain mild overweight in bonds, continue to lock in attractive yields. Cut Brazilian stocks to neutral as both their price and earnings momentum are slowing. See better opportunities in Mexico, largely due to the North American Re-Industrialisation. Following surprise rate cut in Switzerland, downgrade CHF to bearish. Believe BOJ’s commitment to keeping monetary conditions accommodative will delay JPY strength to H2 2024 after the Fed cut, and hence move JPY to a neutral stance.
Forecast Fed to start cutting rates in June, and expect that to continue into 2025. As Fed pivots toward cutting rates, stock and bond returns should once again be inversely correlated, re-establishing a mix of the two is an attractive risk-return profile. Base case summer forecast of Brent around$90pb and Q3 forecast raised to $94pb.Upgraded energy sector because the sector’s relative performance has lagged crude oil prices and valuations are compelling.
* 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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