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US Perspectives - A review of US Equities in October

Investments Insights

US Perspectives - A review of US Equities in October

Oct 31, 2023

  • US equities have struggled of late due to a confluence of political, geopolitical, and financial issues. Despite the near-term risk, we remain constructive on US equities in the longer term. Solid economic growth, continued disinflation, lower valuations, and the expected Fed pause all suggest improving margins and better expectations for corporate profits in 2024
  • Through the close on October 27, 49 per cent of the companies listed in the S&P 500 have reported earnings. The blended earnings gain (forecasts plus reported earnings) of 2.7 per cent y-o-y for the third quarter would be the first to produce earnings gains since 3Q22. So far, 78 per cent of companies that have reported to date, have posted earnings estimates above the consensus, which is above both the 5-year average of 77 per cent and the 10-year average of 74 per cent 
  • US equity investors continue to face several headwinds in the near term. However, we still believe that the prospects of lower market and policy rates next year, a much-improved earnings outlook, and the tailwinds from a few secular themes should provide the impetus for better US equities valuations
  • The technology revolution continues. While the market has focused heavily on artificial intelligence, the convergence and diffusion of revolutionary technologies should continue to create new business models, lift productivity, and expand the return on invested capital. All this points to better corporate margins, earnings, and equity markets going forward
  • The re-industrialisation of the United States is well underway, with several government programs helping facilitate increased investments in manufacturing facilities in the US and Mexico. Onshoring and Nearshoring are also expected to add jobs and create wealth
  • Innovation in US healthcare promises to dramatically lower costs and introduce new products and services. In addition, innovation in the pharmaceutical industry seems to expand demand for numerous pharmaceutical products, which should improve living standards as well as corporate earnings
  • The global slowdown in economic activity does not appear to be as severe as feared, which has led us to become less defensive in our global equity sector selections. We focus on quality companies with strong balance sheets, cash-generating capabilities and low levels of net debt

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