AFMC - Riding The Momentum - Looking Beyond The Tech Giants

2024-04-25 15:50:00 ET

Summary

• Alternative data points to a continued slow pace of normalization in services inflation that could keep interest rates higher for longer.
• The persistence of themes like AI has contributed both to high equity index concentration and strong performance of the momentum factor - raising questions over the potential for a reversal.
• Equity investors can seek to diversify market cap concentration by taking advantage of broadening performance themes - for example, identifying AI beneficiaries outside of the technology sector.

After a strong start to the year, equity investors are assessing whether a range of escalating risks will lead to continued volatility ahead. In this quarter’s Systematic Equity Outlook, we’ll explore macro and micro risks through a systematic lens, and how we’re positioning portfolios to harness alpha opportunities ahead.

While stalling inflation progress this year caused bond markets to significantly recalibrate policy expectations, equities largely continued to climb as solid earnings and AI excitement overshadowed renewed concerns. But that has shifted in recent weeks with a third consecutive monthly upside inflation surprise and rising geopolitical risks beginning to dominate the equity market narrative....

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