US Equities 2Q19: A boost from the Fed's U-turn

Market consensus is expecting further upside for the S&P 500
Chief Investment Office16 Apr 2019
Photo credit: AFP Photo

At the start of 1Q19, we advised investors to stay the course on US equities despite the acute selldown in December 2018. Our rationale back then was:

  • US macro conditions remained supportive of further corporate earnings growth
  • US equity valuations have historically undergone substantial expansion after a bout of sharp contraction the prior year
  • Fund flows were stabilising

True to form, the S&P 500 Index rallied sharply early this year, reversing the losses of December 2018 on the back of resilient corporate earnings and re-rating of valuations. This was despite the lingering trade war uncertainties.

A breakdown of the YTD sectoral performance unveiled three overarching themes currently in play:

  1. Buying the laggards: The top performers during the quarter include Industrials (+16.4%), Communication Services (+14.1%), and Energy (+13.4%). However, these sectors were also among the worst performers in 2018 as they lost 13.3%, 12.5%, and 18.1% during the year, respectively.
  2. Buying for growth: The second-best performer was Technology (+15.1%), a sector which possesses secular growth potential.
  3. Buying to position for dovish Fed: The third-best performer was Real Estate (+14.1%), a sector which has historically performed well when bond yields are moderating.

Click here to read the full US Equities report.

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Click here to watch our 2Q19 outlook video.


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