Monthly Investment Outlook – May 2024

Author: Stefano Torti, Group Head of Asset Management & Advisory.



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In April, investors endured a broad-based decline in the equity and bond markets. Investors have had to face the reality that three to six rate cuts by the Fed was overly optimistic, and they needed to recalibrate their forecasts. Slower GDP growth and nagging inflation may further delay the Fed’s pivot until later in the year. The inflation dragon has not been tamed and the U.S. may be enduring a prolonged period of sticky CPIs. U.S. GDP expanded at a modest 1.6% seasonally adjusted rate in the first quarter versus a revised 3.4% growth in the previous quarter.

More troublesome was the jump in the Fed’s preferred core inflation gauge (personal consumption expenditure index), which rose 0.3% in March and 2.8% year-over-year. Meanwhile, inflation-adjusted consumer spending gained 0.5% more than forecast, which represented the largest increase for this year. With borrowing costs in the U.S. remaining near a 23-year high, GDP growth could continue to moderate at a time when prices are still rising.

Although the resilience of the U.S. economy may avoid a recession, a period of possible stagflation could increase market volatility over the next several quarters. Europe on the contrary shows a clearer picture vs US allowing the ECB to start cutting earlier. Here as well we see slower rate cuts and also highlight that divergences in Central Bank actions will require FX to be closely monitored. On the positive side equity earnings through April have been encouraging, with roughly two-thirds of US large cap companies beating consensus EPS estimates by an average of 9%.

We believe that earnings growth and micro factors are ultimately the key drivers of equity prices despite heightened macro uncertainty, evidenced by many investors assigning large valuation premiums to companies with quality attributes and strong balance sheets.

“ Although the resilience of the U.S. economy may avoid a recession, a period of possible stagflation could increase market volatility over the next several quarters. Europe on the contrary shows a clearer picture vs US allowing the ECB to start cutting earlier. ”






Earnings expectations of higher for longer rates weighed on equities last month, with some consolidation particularly in the US market and a higher appetite for cheaper markets in Europe and China.


Government bond yields have risen on the back of the surprisingly resilient US economy and the lack of urgency to cut rates by the Fed Credit markets continue to benefit from investor appetite (IG in particular).


Commodities were higher in April as most subsectors gained. Oil prices were volatile over the month but ended flat. Ongoing tensions in the Middle East provided price support, but the gains were curtailed as some of the tensions de-escalated and on account of U.S.
inventory builds.

Our sub-asset class views


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EQUITIES          GEGE         The bull market took a pause in April, but no technical break of the trend. The soft landing thesis remains intact. Geopolital risks are for the time being ignored.
US       GGGG           Robust earnings and expectations of rate cuts continue to drive the market. Risks of a slowdown do not appear to be priced in.
UK       GGGG           Positive macro surprises have boosted sentiment, with expectations that rates will fall later in 2024. Cheap valuations could see upside from increasing M&A activity.
Eurozone       GGGG           After stagnating for a year economic activity seems to be picking up. Value and cyclical bias of the market could revise EPS higher.
Switzerland       GEGE GEGE         Quality bias and low leverage make Swiss equities an attractive long term allocation.
EM       GGGG           EM growth outlook remains moderately attractive, with disinflation as an additional support. Valuations are generally attractive but dispersion among countries is high.
Japan       GEGE GEGE         Robust earnings outlook and improving corporate governance are a medium term support. Cyclical bias is however a long term risk if the global economy stalls.
FIXED INCOME       GEGE  GEGE         Front end yields make short-dated investment grade bonds attractive, but it is also time to take duration to minimise reinvestment risk long term.
Sovereign Bonds       GGGG           Euro rates are the most attractive in the near term due to recent inflation dynamics, however US treasuries can provide the most upside in case of an economic slowdown.
Corporate I.Grade Bonds       GEGE GEGE         Selective opportunities in global corporate bonds, particularly in short term and securitized credit.
High Yield Bonds     RRRR RRRR           Valuations are expensive with spreads falling sharply in the last months. The market fully prices a soft landing.
E.M. Bonds       GGGG           EM credit spreads can benefit in case the FED finally cuts rates. Spreads are generally tight but further compression is possible.
ALTERNATIVES       GGGG          
We like holdings that are genuinely uncorrelated to the main asset classes.
Precious Metals       GGGG           Gold price is short term overbought but long term picture is intact.
Hedge Funds       GGGG   A       We aim to create a blend of alternative strategies that offer different return profiles and risk premia to bonds and stocks.
Oil/Commods       GGGG           Commodities are attractive for the long term, due to the demands of net zero, but oil looks to have peaked in the near term as supply has risen.



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CURRENCIES               Recent US economic strength will probably limit the pace of rate cuts and hence be more supportive for the USD.
U.S. Dollar (DXY)       GGGG       The USD strength could continue in the short run due to US growth premium.
Sterling (GBP)       GGGG       BoE could cut rates soon but nominal rates are still very attractive.
Euro (EUR)     RRRR  RRRR       Economic activity is picking up but we expect the ECB to cut rates in June and September.
Japanese Yen (JPY)       GEGE GEGE     Fundamentally attractive but BoJ intervention are complicating the picture and adding to volatility.
Swiss Franc (CHF)      RRRR RRRR       CHF looks expensive on all metrics, and inflation is now below the SNB target.
EM       GEGE GEGE     Economic activity is picking up and inflation is under control in most countries.