IMCV - Equity Market Outlook Q2 2024: Extreme Distortions Everywhere - A Moment For Active Management
2024-04-15 09:50:00 ET
Summary
- Powerful investment themes, such as AI, can capture the market’s collective imagination. Taken to an extreme, however, they can also trigger distortions across and within the markets.
- In our 2Q 2024 Equity Outlook, we examine key historic distortions—wrought primarily by the Magnificent Seven’s recent bull run—that have formed across investment sectors and styles.
- While we remain generally constructive on equities, we recommend that investors and asset allocators make various adjustments to navigate these distortions and potentially take advantage of changing trends over the next 12 months.
- While we acknowledge that strong investment themes can capture investors’ imaginations for longer than history might suggest, we fear that extreme market consensus presents a far greater threat to the future performance of equity portfolios. In short, we believe this is a moment tailor-made for active management.
By Raheel Siddiqui
Moving Beyond the Magnificent Seven
Even in the face of higher interest rates and slowing loan growth, U.S. economic growth has remained resilient and leads the world. We believe rising bond yields and tightening credit spreads are indicative of strength in nominal GDP growth. At the same time, we detect a cyclical upturn in global industrial production (see the left side of figure 1), a trend that has historically tended to last three to eight quarters.1 These developments support our near-term constructive stance on equities in general, and the U.S. in particular.
Figure 1: Global Industrial Activity Is Picking Up While The U.S. Is Showing Early Signs Of Moderating Growth
Source: Neuberger Berman Research and FactSet. Data as of March 31, 2024. Economies referenced are Australia, Austria, Brazil, Canada, China, Denmark, France, Germany, Greece, India, Indonesia, Ireland, Israel, Italy, Japan, Mexico, Netherlands, New Zealand, Poland, Russia, Singapore, South Korea, Spain, Switzerland, Taiwan, Turkey, U.K., U.S. and Vietnam. Source: Neuberger Berman Research and FactSet. Data as of March 31, 2024. Economies referenced are Australia, Austria, Brazil, Canada, China, Denmark, France, Germany, Greece, India, Indonesia, Ireland, Israel, Italy, Japan, Mexico, Netherlands, New Zealand, Poland, Russia, Singapore, South Korea, Spain, Switzerland, Taiwan, Turkey, U.K., U.S. and Vietnam.