Examining the threat to US equities from rising wage inflation

We expect rising wage inflation in the US to squeeze the profits of the non-financial corporate sector, which were a record high as a share of its output in Q2. This is one reason why we think the upside for the stock market there is limited, despite expecting it to continue to outperform Treasuries.
John Higgins Chief Markets Economist
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The case for US banks’ equities to outperform

We forecast that banks’ equities will outperform the rest of the US stock market over the next couple of years, for three main reasons.

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Taking stock of potential corporate tax reforms

This Update answers several questions on the Biden administration’s latest proposals for US corporate taxes as well as the global tax deal recently agreed among the world’s major economies. The proposed changes are probably, at the margin, a reason to think that US equities will underperform. Within the US market, we suspect the earnings of technology and pharmaceuticals companies would see the largest hit.

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Why we still aren’t convinced the S&P 500 is in a bubble

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Another look at US inflation compensation

Although investors took today’s US CPI release in their stride, we still think there is scope for longer-dated Treasury yields to rise further over time.

13 October 2021

Asset Allocation Update

Correlation between US equities & Treasuries not set in stone

While many observers seem to have been surprised by last month’s joint sell-off in US equities and Treasuries, there is no reason in principle why the two assets should be negatively correlated. It all depends on the economic and policy backdrop. Our view is that future returns from both will disappoint.

11 October 2021

Asset Allocation Update

Revisiting the relative valuations of US equities and bonds

Although the pull-back in the S&P 500 last month was probably influenced by a sell-off in Treasuries (see here), we don’t subscribe to the view that stocks are in a big bubble that bonds are bound to burst soon.

1 October 2021
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