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US Perspectives - Long-term fundamentals remain positive for US equities

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US Perspectives

US Perspectives - Long-term fundamentals remain positive for US equities

Jan 16, 2024

  • US equities rallied 11.2 per cent in the fourth quarter of 2023. As we began a new calendar year, that rally has been tested by a new set of variables
  • Political, geopolitical, economic, and financial factors have combined to question the trajectory of the overall economy, inflation, and earnings growth for 2024
  • While we do believe that these factors should lead to a period of tactical volatility in equities in the short term, we remain convinced that the long-term fundamentals remain supportive of an overweight position in US equity markets
  • We believe the Fed will cut rates by 75bps in 2024, beginning from the second quarter of the year, and another 75bps should come in 2025. However, the market expects the Fed to cut policy rates more aggressively, lowering Fed fund rates by 125bps spread across five cuts
  • Some might argue that the rate cuts are only partially priced into the market. However, as the market recalibrates its expectations and fully prices in the Fed rate cuts this year, it should be accretive to earnings, as has been the case historically, and provide further support for US equity valuations in the long term
  • For 2024, industry analysts, as per the FactSet survey are expecting US earnings to rise 11.8 per cent from 2023. This forecast is well above the trailing 10-year average annual earnings growth rate of 8.4 per cent beginning in 2013. All of the eleven sectors are predicted to report earnings growth in 2024
  • Looking ahead to 2025, corporate earnings for the S&P 500 are expected to rise 11 per cent, based on a survey from Bloomberg. In addition, the tech-heavy Nasdaq is projected to post earnings gains of 28 per cent in 2025, up from a forecast of 22 per cent profit growth in 2024. This consistency of positive sentiment around economic and corporate earnings in US equity markets provide solace to global equity investors in what looks likely to be a tumultuous year

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