MCHI - Q3 2024 Equity Market Outlook
2024-07-12 09:20:00 ET
Summary
- We remain constructive on equities based on three general observations - investors’ renewed focus on corporate earnings, the gradual broadening of the stock market and the continuing global industrial rebound.
- In the near future, we expect further corporate earnings growth across sectors, fueled by rising household net worth, a supportive labor market, positive fiscal impulse and reviving global industrial production.
- When global production picks up, we observe goods prices tend to follow, thereby bolstering margins within industrially sensitive sectors.
By Raheel Siddiqui
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).
Reasons For Optimism
We remain constructive on equities based on three general observations: 1) investors' renewed focus on corporate earnings; 2) the gradual broadening of the stock market; and 3) the continuing global industrial rebound....
Q3 2024 Equity Market Outlook