Equity Strategy: January Chartbook

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy

As of end October ‘23, the average stock in S&P500 was down on the year, with SPW at -5%. A lot has changed, courtesy of the November-December rally, and equity markets are now showing overbought conditions, with sentiment moving into complacent territory. This can be seen in high RSIs, elevated Bull-Bear, VIX near lows, tight credit spreads, as well as in the current S&P500 P/E at 20x. Importantly, while a year ago risky assets were fully pricing in a recession, and economists unanimously agreed with that, now the picture is quite different, recession probabilities are currently near the lows of the range, and most macro forecasts are hopeful. This might be too optimistic. Our key call was to go long duration, we advised last October to position for the rollover in bond yields, and while we see this call having legs in 2024, there is likely to be some payback given the sharpness of the move over the past 3 months. Yields could be consolidating near term, and have next leg lower only when activity dataflow shows more clear deterioration. Crucially, while market interpreted falling bond yields since Oct as solely a positive development, we do not think that this will sustain through the year. Lower yields could end up signaling weaker EPS delivery ahead, on softening pricing, sequential activity slowdown and profit margin compression. Bottom line, the risky assets have started to fully embrace the macro combination of central banks easing on lower inflation, but at the same time resilient growth and continued record profitability – this might end up contradictory. All this suggests a much less attractive risk-reward than what would at face value lower bond yields/central banks easing and up to now resilient growth suggest. Healthcare, Telcos, Energy and Utilities have started the year on a positive note, and we think this may continue.

This podcast was recorded on 08 January 2024.

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