Reflecting on the past month, Jeremy Richardson explores:
Individual pockets of strength in some subsectors
The US as a locomotive of investment growth
Equity markets beginning to anticipate a degree of improvement
Durée : {{ formattedDuration }}
Transcription
Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update. Global equity markets have continued to develop very positively over the course of February, really led by the United States, where we continue to see good economic results from companies supported by growing confidence in the economy. If we look around the rest of the world, we don't see those same positives.
Yes, that some individual pockets of strength in some subsectors, but generally we're not seeing the same degree of vigor economically speaking out of Europe or from China, which really leaves the US as the real locomotive of investment growth in terms of global equities at the moment. When we look into that in a little bit more detail, we can see that this strong market development has been achieved despite expectations of interest rates being cut, actually being pared back over the course of the month.
We've gone from the market expecting around about four and a half cuts over the balance of 2024, where each cut is worth approximately 25 basis points terms as we tumble, speaking around about 3.4 cuts. So that's quite a scaling back in terms of activity from the Fed, in terms of interest rate cuts. And it is noticeable that the market, the global equity market, has been able to accommodate that rotation of expectations and propel itself through that.
Notwithstanding that, I think perhaps indicates that equity markets now are sort of beginning to anticipate a degree of improvement. It's almost as though investors, equity investors are saying that the US economy is actually not as bad as we felt. In fact, it's probably looking a little bit better and that gives us improving confidence about the outlook for earnings over the balance of 2024, and we're prepared to pay a little bit extra for that because we can see that things are getting better.
Contrast that with where we were six months ago when the much greater fears about the outlook for economic growth and fears of a hard or a soft landing. Those fears appear to be much more diminished. And so that's causing, I think, the reason why we're seeing these positive developments in equity markets, which some critics are saying is moving further ahead of earnings.
But this is not unusual at turning points. Markets have the habit of anticipating the future economic news long before the companies themselves are seeing it. So, as we go through the balance of 2024, it's going to be really interesting to see whether the companies themselves are not going to be able to report the profits that the that share prices are beginning to appear to discount.
I hope that's been of interest. And I look forward to catching up with you again soon.