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:
Fed to start easing in June, expect three 25bp cuts over 2024. Softening labor market, slower economic growth, and moderating shelter inflation should help overall inflation trend lower. Project 10-yr US Treasury yield at 3.5% by year end. Recommend investors manage liquidity, lock in attractive bond yields, and complement their core equity holdings with small-cap stocks (attractively valued) in anticipation of rate cuts ahead. Expect gold to trend higher to USD2,250/oz, but wait for price setbacks to gain exposure, even if brief and modest (recommend 5% allocation to balanced USD portfolios). Select gold miners appeal given many have lagged gold's rally, offering relative value and the potential to generate income. Generative AI is growth theme of the decade, US tech stocks should be a substantial portion of equity allocations, but Asia is a compelling destination for tech diversification, and see further potential in AI customs chips and foundries.
Real US 2024 GDP estimates raised from 1.6% to 2.0%, whilst 2025 estimates cut from 2.6% to 2.4%. 2024 Global GDP estimate increased from 2.2% to 2.3%, whilst decreased from 2.8% to 2.7% in 2025. February’s US jobs data remains consistent with expectations for Fed easing to start by mid-2024. More optimistic than then Fed that it will meet its inflation targets by the end of 2024. Updated projections likely rule out ECB April rate cut. S&P500 EPS estimates raised, expecting a gain near +8% in 2024 (vs 5% previously) and +6% in 2025 to record highs for US profits. Healthcare stocks’ earnings issues are transitionary, thus creates a possibility for sector outperformance in 2024.
Fed rate cuts revised from 100bp to 75bp this year. Considerably more stimulus needed for China to reach ambitious c.5% growth target. Drags are from pent-up demand, the property sector, local government debt crackdown and investment in ‘green’ sectors.
Soft landing is now base case with 60% probability, this is because of U.S. economic resilience, lower bond yields, and various historically powerful recession signals have begun reversing. Even if a global recession materialized, it would be mild and short lived. Key risks include intensifying geopolitical tensions, China’s slowing growth, lagged interest rates impact, challenges in U.S. commercial real estate, and the November U.S. presidential election. Forecast DM inflation to continue falling at gradual pace toward 2% central bank targets over the course of 2024 and into 2025. Forecast three 25bp Fed cuts in 2024 starting in late spring/early summer. S&P 500 earnings per share is expected to climb 9% to $243 by the end of 2024 and rise by an additional 13% to $276 by the end of 2025. Recommended asset mix for a global balanced investor; 60.0% equities, 38.5% bonds, and 1.5% Cash.
Fed, ECB and BOE rate cut outlook remains unchanged. Equity resilience even as rate market repriced is a key sign of market confidence in the cyclical and structural factors supporting earnings growth. Moved to mild overweight global equities, initially adding to existing US overweight which will continue to outperform, moreover, historically they perform well in an election year. Four key priorities required, firstly, extending bond duration ahead of policy easing. Secondly, broadening US equity exposure to benefit from soft landing. Thirdly hedging tail risks via alternatives, multi-asset and volatility strategies. Lastly, diversifying Asian equity exposure, which includes overweight’s in India, Indonesia, South Korea and now Japan.
Expect US 2024 GDP growth to surprise on the upside, spurred on by greater fiscal stimulus than expected, particularly given an incumbent party economy support spending in an election year. Risk of 2024 recession reduced. Existing exposure to already overweight DM equities increased. Current YTD strength, based on historic data, is a very good sign. 2024 is the 18th year since 1945 the market has been up 6% or more the first two months, the average return from March until year end for the previous 17 times was+11.9% with only one instance where the market was down. Real rate differentials forecast will favor USD, plus cyclical tensions within Europe, which is showing that it might be slower in terms of growth in the US, illustrates USD favoritism. Same thing with China. EM hard currency debt remains overweight given spreads and rates are likely to support the EM hard currency debt returns following the year-to-date backup in bond yields. Moved further underweight in IG credit. Municipal Bonds shifted to neutral from overweight.
* 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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