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US Perspectives - A review of US Equities in November
Nov 30, 2023
- US economic growth is set to slow cyclically after the Federal Reserve lifted interest rates by more than 500 basis points in its most aggressive monetary policy tightening cycle since the early 1980s. However, the unemployment rate remains near 60-year lows, and wages are still rising at almost double the rate of the last business cycle. Also, real disposable income is growing once again as inflation has declined. This is a boon to consumer spending as real incomes have not risen in two years
- In addition to the anticipated slowdown in economic growth on a cyclical basis, the US federal government has boosted spending and incentives to lift domestic activity. This should create jobs and wealth
- We look for a variety of secular themes like the emerging technology revolution, innovation in healthcare and other sectors, the re-industrialisation of the US, and the near-shoring and onshoring of jobs to provide tailwinds for US economic growth next year
- In terms of interest rate volatility, the US Treasury has given markets a timetable showing that debt issuance may remain elevated through the middle of the first quarter of 2024. After that, Treasury estimates future issuance should return to more normal levels. As growth and inflation are both expected to continue to decline in 2024, lower rates are likely despite the elevated levels of borrowing
- We continue to believe that the prospects of lower market and policy rates next year, a much-improved earnings outlook, and the tailwinds of a few secular themes should provide the impetus for better US equity market valuations in 2024
- Financial markets are expecting interest rate cuts by mid-next year, with investors pricing in the probability that rates should be lower than their current level by July 2024, according to the CME FedWatch tool. That could be bullish for stocks, considering that rate hikes weighed the S&P 500 down heavily in 2022
- In the US, a pause from the Fed, combined with continued disinflation and an improving earnings outlook, could be a real positive boost to equity fundamentals