-
Cityscape in distance

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.

Thematics

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 April 2019

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?

Investment services

We give you versatility and a choice of services

Barclays Private Bank provides discretionary and advisory investment services, investments to help plan your wealth and for professionals, access to market.

Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.

This document has been issued by the Investments division at Barclays Private Banking and Overseas Services (“PBOS”) division and is not a product of the Barclays Research department. Any views expressed may differ from those of Barclays Research. All opinions and estimates included in this document constitute our judgment as of the date of the document and may be subject to change without notice. No representation is made as to the accuracy of the assumptions made within, or completeness of, any modeling, scenario analysis or back-testing.

Barclays is not responsible for information stated to be obtained or derived from third party sources or statistical services, and we do not guarantee the information’s accuracy which may be incomplete or condensed.

This document has been prepared for information purposes only and does not constitute a prospectus, an offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it.

Any offer or entry into any transaction requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding transaction documents. Any past or simulated past performance including back-testing, modeling or scenario analysis contained herein does not predict and is no indication as to future performance. The value of any investment may also fluctuate as a result of market changes.

Neither Barclays, its affiliates nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.

This document and the information contained herein may only be distributed and published in jurisdictions in which such distribution and publication is permitted.  You may not distribute this document, in whole or part, without our prior, express written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions.

The contents herein do not constitute investment, legal, tax, accounting or other advice. You should consider your own financial situation, objectives and needs, and conduct your own independent investigation and assessment of the contents of this document, including obtaining investment, legal, tax, accounting and such other advice as you consider necessary or appropriate, before making any investment or other decision.

THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IT IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.