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CIO Strategy BulletinArticle24 Mar 2024

Driving Powell’s Roadster

CIO Strategy Bulletin

The Swiss National Bank was the first major central bank to lower borrowing costs with others expected to follow suit.

Key takeaways from this week's bulletin:

  • Central Banks Spur Equity Market Gains: US shares hit a new record high Thursday. The two more-dovish-than-expected central bank policy actions, along with Fed Chairman Powell’s steadfast comments that economic growth would not stop the US central bank from easing, helped boost equity markets. The Swiss National Bank was the first major central bank to lower borrowing costs with others expected to follow suit. While the Bank of Japan moved in the other direction, its impact was muted.
  • The Bull Market is Not Aging, it is Broadening: It has been said that an aging bull market tends to “narrow out” as it reaches its peak. We see the opposite happening in markets today. More US and global equities are breaking out of trading ranges, in line with our expectation that 9 out of 11 sectors have the potential to post Earnings per Share (EPS) gains in 2024.
  • Diversification Can be Beneficial: The US equity market has risen from about a 50% share of the developed world’s market cap to 70% in the last 15 years. While this may be sustainable, we are highly doubtful that the US will rise to 90% in the coming 15 years, which means there may be little to lose from diversifying across sectors and regional markets.

Potential Portfolio Implications

Even though Artificial Intelligence (AI) related investment spending and demand for services is only in its early stages, in our view the time for “chasing performance” in just a few stocks has passed.

With markets broadening, portfolio diversification may be both profitable and risk-reducing. Sector and geographic diversification seek to mitigate risk and potentially allows investors to benefit from wider earnings gains across more sectors. It also may reduce volatility from momentum-driven share corrections.

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