{"id":9194,"date":"2024-01-29T09:25:43","date_gmt":"2024-01-29T09:25:43","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/think\/equity-outlook-q1-scope-for-further-upside-across-equity-markets\/"},"modified":"2024-01-29T10:20:19","modified_gmt":"2024-01-29T10:20:19","slug":"equity-outlook-q1-scope-for-further-upside-across-equity-markets","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/equity-outlook-q1-scope-for-further-upside-across-equity-markets\/","title":{"rendered":"Equity outlook Q1: Scope for further upside across equity markets"},"content":{"rendered":"

After a strong end to 2023, the prospects for equity markets and active stock selection are now encouraging. However, investors should remain flexible - 2024 may have more surprises in store.<\/strong><\/p>\n

As 2022 drew to a close, most investors predicted a weaker US economy in 2023. How could this not come to pass, given the dizzying rise of US interest rates from 0.25% to 4.5% in just nine months? Many pinned their investment hopes not on the US, but on a newly reopened China.<\/p>\n

In fact, the US economy grew by around 2.5% in 2023 \u2013 significantly more than its 1.9% growth in 2022. China, meanwhile, faces a deflating property bubble and weak consumer confidence, raising fears of a debt-deflation spiral.<\/p>\n

Also confounding expectations<\/a>, equity markets were the winning asset class in 2023, despite the failure of three US regional banks, war in Ukraine, US-China tensions and the Israel-Hamas conflict. Most striking was the performance of the \u2018Magnificent Seven\u2019, the largest US-listed technology companies. In aggregate, these rose 107% ($, total return), primarily due to high expectations for the disruptive potential of generative artificial intelligence<\/a> (AI). The rest of the S&P 500 \u2013 the \u2018S&P 493\u2019 \u2013 \u00a0returned a more modest 9.9% ($, total return).<\/p>\n

2023: Spectacular but highly concentrated equity returns<\/h2>\n\n\n\n\n\t\n\t\n\t\n\t\n\t\n\t
The Magnificent 7*<\/td>107.0%<\/td>\n<\/tr>\n
\u2018S&P 493\u2019+<\/td>9.9%<\/td>\n<\/tr>\n
MSCI World Equally Weighted Index<\/td>17.3%<\/td>\n<\/tr>\n
S&P 500<\/td>26.3%<\/td>\n<\/tr>\n
MSCI All Countries World Index (ACWI)<\/td>22.8%<\/td>\n<\/tr>\n
Bloomberg Global Aggregate<\/td>5.7%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nSource: Bloomberg\/S&P, US dollar total returns, as at 31 December 2023. *Microsoft, Amazon, Google parent Alphabet, Tesla, Facebook (Meta), Nvidia and Apple. + The S&P 500, excluding the Magnificent Seven.<\/span>\n\n

 <\/p>\n

Past performance is not a reliable indicator of future results and may not be repeated. <\/strong><\/p>\n

A friendly environment for equities<\/strong><\/h3>\n

Forecasting in a complex world is challenging, particularly when a pandemic has created an economic cycle with little modern-day precedent. These are unusual times, and we are mindful to keep our portfolios well-balanced and flexible.<\/p>\n

Nonetheless, gauging the outlook for the world economy<\/a> and for markets is a key element in our investment approach, alongside identifying the most promising companies within our five global investment themes.<\/p>\n

Our central outlook is for disinflation and a soft landing, but there are risks of a surprise decline in growth or a return of inflationary pressures. We believe it is increasingly likely that interest rates and long-term bond yields have peaked. If they have, history is on the side of further upside to equity markets over the coming year. At the end of the Federal Reserve\u2019s (Fed\u2019s) last six hiking cycles, equities rose 5 out of 6 times in the following 12 months[1]<\/a>. The exception was 2000, when the Dot.com bubble began to implode.<\/p>\n

We also believe that much of the post-pandemic inflation was due to constrained supply chains, not excess demand. Given this, deep or prolonged economic weakness may not be needed to return economies to equilibrium.<\/p>\n

Our central case is for the global economy to slow but avoid recession, with a soft landing in the US and potentially a mild recession in Europe and the UK.<\/p>\n

Company profits tend not to fall sharply outside of a recession. If a soft landing, or even \u2018no landing\u2019, can be achieved, the weakest point for earnings may be behind us.<\/p><\/blockquote>\n

Most importantly, we now expect the Fed to cut interest rates by 1.5% in 2024. A combination of moderate growth, sharply declining inflation, easier monetary policy and lower long-term rates is exceptionally friendly for equities.<\/p>\n

\"\"<\/p>\n","protected":false},"excerpt":{"rendered":"

After a strong end to 2023, the prospects for equity markets and active stock selection are now encouraging. However, investors should remain flexible - 2024 may have more surprises in store. As 2022 drew to a close, most investors predicted a weaker US economy in 2023. How could this not come to pass, given the...<\/p>\n","protected":false},"author":23,"featured_media":12920,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28,27],"tags":[],"coauthors":[104],"class_list":["post-9194","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","category-thematic"],"yoast_head":"\nEquity outlook Q1: Scope for further upside across equity markets - Sarasin & Partners South Africa<\/title>\n<meta name=\"description\" content=\"After a strong end to 2023, the prospects for equities and stock selection are encouraging, but 2024 can hold surprises. 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