Equities outlook: time for a spring break?

03 May 2019

By Julien Lafargue, Head of Equity Strategy

With the bounce in returns we expected this year taking global equities close to new all-time highs, we believe it’s too early to turn even more constructive. We stick to our key themes and expect some consolidation in the short term.

Equity markets marched higher in April as investors welcomed improving - or at least stabilising - economic data and encouraging signs from companies reporting their first-quarter results.

With regards to the macroeconomic picture, one key development has been the positive news coming out of China with  growth in output, retail sales and industrial production all surprising positively.

In last month's Market Perspectives, we highlighted that China was key in unlocking further upside. With signs that the domestic economy is picking up and a trade deal with the US looking ever more likely (although its details remaining unknown), we believe that we are one step closer to our "bull case" (i.e. the S&P 500 index moving above 3000).

Similarly, we previously pointed to the fact that the consensus earnings expectations for 2019 in the US were cautious with projected year-over-year growth of just 3%. Although it's still early in the reporting season, first-quarter results seem to indicate that expectations may move closer to the 5% growth we anticipate.

equities 2019 earnings

Yet, despite these positive developments, we think it may be premature to turn significantly more constructive. At this stage, our two main concerns lie with:

  • A political agenda that is getting busier (European elections in May and the US presidential election campaign ramping up)
  • A market technically approaching overbought levels with suppressed volatility. As such, we would not be surprised to see some consolidation in the short term.


April's developments reinforce our conviction around late-cycle investing and yield enhancement as economic activity remains healthy and interest rates are stuck at low levels.

Inflationary pressures may seem even lower after disappointing prints globally but this, in our opinion, makes the risk of an unexpected jump all the more relevant.

At the regional level, we maintain our preference for US and emerging markets assets as the growth outlook they offer should allow them to deliver further outperformance compared with their peers.

From a sector perspective we remain of the view that it is too early to be defensively positioned.

From a sector perspective, we remain of the view that it is too early to be defensively positioned and advocate focusing on growth opportunities with sectors such as consumer discretionary and communication services in the US or industrials in Europe.

Finally, although political noise may continue to weigh on investor sentiment in the short term, we see merit in owning healthcare over the medium term.


Market Perspectives May 2019

Find out our latest key investment themes. With global equities close to record highs and significant political uncertainty, where next for markets?


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