Equities

Asset Class

Structural (2-3y+)

Cyclical (6-12m)

Commentary

(S&P 500 unless specified)

Age of Scarcity means reversal of cheap credit, cheap labor and cheap commodities. Equities to weather era of higher inflation better than bonds (report).
Public pension funds still face funding shortfalls, necessitating a reach for growth and duration, which creates a structural bid for growth equities (chart).

Relative Value:

Capital cycle favors: luxury goods (report), transportation, telecom, tobacco, energy (chart).
Electronic equipment, instruments and components screen as capital scarce and uncrowded and is set to be a beneficiary of the mega-trends in automation, IoT and EVs.

Consensus EPS growth for calendar 2025 remains relatively strong at 11%+, but our leading indicator for EPS growth has been rolling over (chart).
Compared with historical Fed easing cycles, the S&P 500 is now trading in between recession and no recession once again (note)
Macro risks remain balanced and our asset allocation engine still prefers US equities vs the RoW (app).

Relative Value:

US small caps should continue to underperform in 2025 (report)(report).
Energy stocks have large upside to VP Fair value, uncrowded, capital scarce, and offer the best relative yield pick-up versus bonds (report).
Luxury goods are attractive from a top-down and quant perspective, supported by continued strength in our consumer leading indicators (report)(video)

Our Macro Risk Indicator is still “neutral” on the risk asset outlook, suggesting a benchmark allocation to equities vs bonds on a 6-month forward basis (chart). However, the potential impact of tariffs will not have fully fed through into the models yet (report)
We still don’t see evidence of an imminent recession. Our cyclical US growth leading indicator remains a clear positive outlier in the G3 (chart). High frequency data (OpenTable diners, TSA passenger numbers, Fed Weekly Eco Index) also still look resilient.
High valuations and our outlook for elevated volatility leave us staying selective in our exposure to US equities.
Preferred thematic exposure: Luxury goods, electronic components, energy.

(MSCI EAFE unless specified)

Relative Value:

Our Asset Allocation Engine suggests now is NOT a time to broadly allocate to DM ex US Equities given the current neutral macro regime and moderate liquidity headwinds (app)(report)
Over 90% of DM growth LEIs are positive YoY (chart) but China risks in Europe remain, although we see China upside risks (chart)(report).
Our Eurozone earnings LEI is still positive but at a very low level (chart) while valuations are still above 2010's trough levels.

Relative Value:

Our Eurozone growth LEI has edged lower, dragged down by weakness in Germany (chart). On balance, key inputs suggest the region will continue “muddling through”.
Germany remains negative outlier; domestic new-orders continue to fall and risks from weak Chinese growth and a renewed “trade war” under the Trump administration could weigh further on already stagnating foreign new-orders. (chart).
Structurally, there is unlikely to be a meaningful Eurozone recovery without fiscal support. Since the initial pandemic stimulus, the region’s fiscal impulse has been negative (chart).

(MSCI EM unless specified)

Relative Value:

Our capital cycle score for China internet stocks has surged higher, while valuations still remain low (report). China continues to face many fundamental and structural problems, but as a “surprise” the set up in China tech offers good risk-reward.
Capital cycle favors: Mexico (chart)(report)

Our Asset Allocation Engine suggests now is NOT a time to broadly allocate to EM equities given the current neutral macro regime and moderate liquidity headwinds (app)(report).
The majority of our EM country growth LEIs remain positive YoY (chart).
Our earnings LEI is turning down, with the absolute level still negative (chart)

Relative Value:

The worst appears over for Brazilian assets. Despite upside inflation risks, we are seeing early signs of improvement (report).
Stay long Indian equities as strong growth and cheap oil provide tailwinds (report).

Liquidity conditions still pose moderate headwinds to EM. This needs to abate before an all clear signal (chart).
We see select opportunities across EM: China Tech, India, and Brazil.