CIO Strategy BulletinArticle28 Jan 2024

Global Trends, Countertrends and Portfolio Blends

CIO Strategy Bulletin

We continue to see opportunity in global equities markets through broadening earnings and equity performance beyond large cap US tech.

Key takeaways from this week's bulletin:

  • As we enter 2024, equities are outperforming bonds and US equities are outperforming global shares, both in line with our asset allocation. US equities have returned +2.5% in the year to date, US fixed income -1.2% vs 0.9% for global equity and -2.3% for global fixed income.
  • The normalization of the world economy is underway. But the global economy is not growing uniformly and the potential opportunities in equity markets reflect this. The “return to normal” has many features as we outline herein.
  • Even as corporate profits are rebounding, we expect US employment growth in 2024 to moderate. This reverses the unusual pattern of 2022-2023 where we saw strong employment growth and declining earnings. This suggests an improvement in labor/capital productivity in 2024 and 2025.
  • Our favored equities - quality growth shares in small and mid-caps, as well as equal-weighted S&P 500 have been rising, with small cap growth outperforming the S&P 500 since November 2023. We continue to see opportunity in global equities markets through broadening earnings and equity performance beyond large cap US tech.
  • Current drags on economic activity will not endure indefinitely. We see a reversal in monetary policy tightening unfolding across the globe at different times and rates. More importantly, in our view, will be the end of inventory corrections that will sustain a global trade recovery. We believe this is likely to begin before the end of 2024. The US was harmed least and will benefit less from the improvement in global trade.
  • In terms of risks, global supply shocks remain our largest concern. Recent news that the Red Sea has become practically impassable fits that narrative (see our January 21, 2024 Strategy CIO Bulletin). As we discussed in our Wealth Outlook 2024, this keeps us disposed to allocate slightly less aggressively toward equities and within equities, toward sectors such as energy.
  • We recently published our Global Investment Committee January 2024 report, which left the allocation unchanged in Equities at +2% with global Fixed Income and Cash -2%. During the coming year, we expect the world economic expansion to regain strength and several regions to commence recovery. If market yields drop modestly further while cash returns are driven lower by the Fed, we would likely further shift up our global equity exposures at the expense of certain fixed income instruments.

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