CIO Strategy BulletinArticle25 May 2024

A Blessing of Low (Global) Expectations

CIO Strategy Bulletin

While we suggest taking gains in a handful of opportunities, plenty of opportunities remain. Medtech companies should continue to see earnings improve as procedure volumes recover. Western energy firms and defense contractors face a solid earnings backdrop while also serving as useful geopolitical risk hedges in portfolios. And as we detail below, semiconductor equipment remains a top idea driven by both AI-led digitization as well as G2 polarization.

Key Takeaways

  • In our May Quadrant, we review our upward revisions to global growth forecasts in every region (this is the second time we’ve upgraded growth forecasts in 2024). Inflation fears – and incipient trade war fears – remain. However, growth is becoming more widespread across the world.
  • Last year, corporate profits outside the US fell 7.5%. This was slightly more than the 6.5% drop for the S&P 500 excluding the largest US tech-related stocks (the so-called “Magnificent 7”). The overall S&P 500 grew EPS just 0.6% last year as large cap tech began a sharp EPS rebound after declines in 2022 (please see our April 27th CIO Bulletin).
  • EPS gains should broaden to more economies and industries in 2024 and beyond. With the S&P 500 returning nearly 29% over the past year and non-US shares returning 14%, we’ve slightly moderated our US equity overweight across themes and reinvested across Europe and Asia broadly. We’ve also trimmed US short-term debt slightly as we still expect a cooling US labor market to sway the Fed again.

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