Valuations
MacroQuant downgraded equities from overweight to neutral on a 1-to-3 month horizon. The model maintains a negative view on stocks over a 12-month horizon.
In this Strategy Outlook we examine why, contrary to popular perception, the odds of a global recession over the next 12 months are rising not falling.
GAI is a powerful force that will revolutionize the global economy and we are sold on this long-term investment theme. To partake in the upward momentum, we recommend a nuanced approach. The GAI infrastructure cohort is now overbought - there should be a better entry point. The models and applications companies and early adopters are less of a crowded trade and offer more opportunities.
In this Special Report, we introduce our UK Linkers Golden Rule – a framework to profitably trade and invest in UK inflation-linked bonds versus nominal UK gilts. The Rule is currently signaling that nominal Gilts should outperform UK linkers over the next year as UK inflation slows.
Many investors have cited the 1994 tightening cycle as an example of how the Fed managed to raise rates without triggering a recession. However, the unemployment rate was 6.5% in early 1994, which meant that inflation was less of a risk than it is today. Productivity growth also accelerated starting in the mid-1990s. While something similar may happen again thanks to AI, so far this is not visible in the aggregate productivity data.
The market narrative continues to be dominated by the Magnificent Six, which drove both market performance and strong Q4 earnings results. While all sectors and styles have recently turned green, the rally is still mostly narrow. Earnings growth appears to be strong, but outside of the Magnificent Six, many companies are struggling. The market appears expensive and overbought, but that is mostly down to the high valuations and the popularity of the Magnificent Six.
MacroQuant upgraded equities to overweight in February on a tactical short-term (1-to-3 month) horizon, but it continues to see downside risks to stocks on a medium-term (12-month) horizon. Consistent with the model’s relatively somber medium-term growth outlook, it sees more downside for bond yields on a 12-month horizon than on a 1-to-3 month horizon.