Earnings and estimates are very strong, so why not be super-bullish?
A key question from clients that we have addressed recently is: earnings and analyst estimates have rarely been stronger, even in regions less exposed to the AI boom than the US (Europe, Japan), so why have equities shown less enthusiasm lately, keeping our Equity Risk Model no better than neutral? A few flies in the […]
Heavy rotation and dispersion holding US equity indices up
Low stock correlations and rapidly rotating leadership is making the indices look more stable than the underlying stocks are. Earnings expectations are extremely high but starting to come under more scrutiny. Risk is higher than the VIX makes it look. The big feature of the US market lately has been the gap between individual stock […]
US resumes regional earnings leadership, along with Japan, Taiwan, and Korea
Before the Q1 earnings reporting season, the US had been gradually slipping on relative earnings estimate revisions metrics, but the Q1 results came in much stronger than expected almost across the board. With the Tech/AI leadership in the US resurgent, the US has jumped back near the top of our regional revisions rankings, supporting our […]
Market outlook update — reducing equity exposure
It has been an eventful year so far, and the backdrop has changed a lot since the end of February. Below is an overview of some of Mill Street’s recent comments on the market outlook, capturing both our proprietary model output and qualitative macro views. Risk appetite and trend weakening rapidly amid geopolitical risk, model […]
Rotation in stocks is intense but likely overdone
A lot of last year’s losers are this year’s winners, and vice versa, as investors stay in equities but have rotated aggressively. Much of this is not driven by earnings outlooks (at least for the next year or so), but valuation concerns and short-term sentiment and positioning. While some shifts may be reasonable, some of […]
Why US stocks have underperformed this year
The US has had stronger earnings growth than much of the rest of the world, but it has been unable to outperform this year due to the narrowing of its valuation premium. This likely reflects a combination of stronger ex-US earnings growth, high US policy risk, and the rapidly growing relative concentration risk in the […]
Divergence in the Tech space: Technology vs Communication Services
The Tech-related space remains the focus in the US, and we have recently noted a growing divergence between the Technology sector and its cousin Communication Services in the S&P 500: Tech remains strong while Communication Services is weakening. We thus see growing selectivity by analysts and investors in the Tech/AI space and our sector allocations […]
The Fed’s dilemma (or trilemma?)
The Fed has made clear that it is struggling to balance the two parts of its dual mandate: inflation and employment, and now faces a third concern of political pressure. It is leaning toward employment risks over inflation risks right now, but will be constrained from aggressive moves while this tension persists, along with trying […]
Trade war effects on earnings estimates
Every week seems to bring a new twist in the bizarre and unnecessary trade war started by the Trump administration, which is hurting many companies and consumers but is thus far having little impact on the major US equity market indices, though it is pushing the US dollar down. The latest headlines indicate higher tariffs […]
Policy and market damage means volatility likely to stay for a while
Despite a recent respite, our indicators tell us that market volatility is likely to stay elevated for a while longer, with important implications for asset allocation and stock selection. Significant damage is being done to the US economy and the global trading system. After several years of relatively calm equity markets despite volatility in bond […]