Insights

On the eve of the US presidential election that is deemed too close to call, it is not surprising that the uncertainty has rippled into market responses through the course of October.

The FT Wilshire has established record high ahead of the November election. However...

The final week of September saw the Chinese authorities deploy a stimulus bazooka aimed at reversing sentiment towards Chinese equities.

A relief that the Fed have started to ease …

US equities staged a strong ‘V’ recovery and closed in on the high reached in late July.

In terms of assessing the status of the ‘Profit Cycle’ as a market driver there are multiple dimensions that can be applied to this analysis

A recent look at the extreme concentration in the US equity market, expressed as the wide gap between the performance of the FT Wilshire 5000 index (distorted by contribution of the Magnificent Seven stocks) compared to performance of the Equal weighted index.

A key feature of US equity market performance over the last couple of years has been the increasing dependence on the returns delivered by a handful of stocks, raising concerns about the degree of concentration.

Macro economic backdrop has been supportive of risk appetite

The FT Wilshire GLIO (Global Listed Infrastructure Organisation) Listed Infrastructure Indexes provide exposure to global companies which own and/or are operators of infrastructure assets

2023 was a disappointing year in terms of EPS growth.US equities only delivered +2.3% growth while the World ex US saw a decline of -4.2%.

On the back of surprisingly robust growth in 2023, both consensus forecasts and the Federal Reserve have been upgrading expectations for 2024.

Japanese Equities have continued to power ahead delivering a 13% return YTD through to the end of February

The continued surge in Nvidia and other AI related stocks is posing a question about US equity valuation status

The rally in US equities over the last 3 months (+16.4%) was partly a function of growing confidence in peak rates and anticipation of an easing cycle

The FT Wilshire 5000 26.1% return in 2023 was driven by 2 large up-legs

The FT Wilshire 5000 delivered a 26.1% return in 2023

In our latest Market Driver report we identified the ‘Magnificent 7’ risk appetite wish list 2024

All equity regions have experienced a large de-rating from their 2021 highs

September was the largest monthly decline this year and it produced a negative return of -3.3% for Q3

The good news - 2023 & 2024 US EPS estimates have started to inflect higher...

Through the prism of style indices, 2023 has seen a strong rotation towards Growth v Value

A significant driver behind the recovery in risk appetite over the last few months has been growing conviction over the delivery of a soft-landing for the US economy

Watch what markets do not what they say

Since 1978 we have identified six periods when inflation has more than doubled and moved significantly higher

A strong finish to Q2 delivers a 16.3% return YTD

Viewed through the prism of absolute PE’s the US (like most markets) has witnessed a rollercoaster in PE valuations since hitting a peak in April 2021

The strong headline FT Wilshire returns do not reflect market undercurrents

As we approach the middle of the year increasing attention is given to the EPS outlook beyond year end 2023

2023 has witnessed some key inflection points and reversals in market behavior compared with the 2022

An important second order effect resulting from the collapse of Silicon Valley Bank (SVB) ...

The +7.3% return in Q1 was delivered in three distinct phases

The collapse of Silicon Valley Bank (SVB) and fears of contagion have hit global bank stocks, rippling through to wider risk off market sentiment

Share buybacks in the US have been a key feature of market dynamics during the post-GFC period...

While the FT Wilshire 5000 adopted a risk off tone in February…

The improvement in risk appetite in recent months has been underpinned by a 'Goldilocks' scenario of easing financial conditions

The FT Wilshire 5000 has appreciated 14.5% from the mid-October low

Markets are convinced that inflation has already peaked and that interest rates should follow suit by Q2 this year.

The FT Wilshire 5000 delivered the 4th largest annual drawdown since 1970

The second half of 2023 has seen the 2023 EPS growth rate forecast start to decline

The likelihood of the delivery of sustained disinflation in 2023

Bear markets are not linear – they typically witness numerous rallies

The FT Wilshire 5000 rallies 8.2% in October

The FT Wilshire 5000 has experienced a technical bear market in 2022 (defined as at least a -20% drawdown)

Scale of the drawdown in global equities in 2022 has produced a significant de-rating with US equites experiencing one of the largest PE contractions

A key feature of 2022 has been the sustained strength of the US dollar

The rapid reversal in risk appetite in Q3 has produced a retest of the June lows

After a period of relative stability, we are starting to see a deterioration in the EPS or profit cycle through the prism of estimate trail analysis

Markets have been gripped by risk aversion since mid-August

Hawkish Fed guidance sends FT Wilshire 5000 into reverse gear in August

Equities are a long duration asset class and returns should be viewed via the prism of long-time horizons

US consumer durables, technology and retail have led the re-rating of the US market since mid-June

Following a record-breaking decline in the first half of 2022, markets have staged a recovery led by the US.

The 9.6% return in July was driven by a rotation to growth stocks

The scale of decline in valuations was one of the largest de-ratings witnessed in 30 years

Consensus EPS growth forecasts have been resilient - is this reassuring or highlighting the risk that an EPS downgrading cycle is yet to commmence?

Movements in US 30s/10s curve generally lead 10s/2s despite focus on 10s/2s

Stung by the persistency and level of inflation and the accusation of being behind the curve the Federal reserve has cranked up its hawkishness

2022 has witnessed a large rotation in both factor and style indices

The first half of 2022 witnessed a significant correction to the FT Wilshire 5000 index taking the index back to levels last seen in early 2021