Financial headlines suggest that vigorous debate has returned to equity markets. In our 3Q Equity Market Outlook, we highlight key aspects of this shift and discuss what they might portend for markets over the next six to 12 months.
Specifically:
- We observe that corporate earnings (rather than PE multiples) have primarily driven market returns year-to-date; most sectors have seen positive future earnings revisions; and we expect the global industrial rebound to strengthen.
- We believe intensifying market distortions substantiate our 2Q concerns about big tech’s potential underperformance in the medium term relative to selective cyclical and defensive stocks.
- We expect elevated volatility around the U.S. presidential election in the second half of the year.
- We will closely monitor inflation and its effect on real disposable personal income (RDPI): If RDPI deteriorates, consumption growth could suffer; if it improves, we believe economic growth would accelerate and likely embolden equity markets.
- Portfolio Considerations: We recommend overweighting Energy, Materials, Industrials, Financials, Consumer Staples, Health Care and Utilities, while underweighting Information Technology, Communication Services and Consumer Discretionary. We also maintain portfolio factor shifts from growth to value, and from large cap to small cap. Finally, we advise tactical regional shifts in Japan (from overweight to market weight) and China (from underweight to overweight).
You can now read the full whitepaper at the link below
