Revising down our forecast for Swiss equities

We no longer expect the MSCI Switzerland Index to outperform the MSCI USA Index over the next couple of years and have lowered our end-2021 and end-2022 forecasts accordingly.

19 April 2021

Employment rebound points to further rally in US equities

Today’s far-better-than-expected US non-farm payrolls has helped push the S&P 500 up by another 1%. And so long as the US economy continues to recover and the recent spike in coronavirus cases there does not lead to renewed widespread lockdowns, we think that equities will make further gains.

2 July 2020

Economies coming roaring back

Restrictions on activity have lifted in both countries. While some states in Australia still limit the size of groups and capacity at restaurants, New Zealand has now lifted all domestic restrictions. The reduction in restrictions has contributed to a pick-up in spending in both countries with consumption bouncing back further than expected in May and surely rising again in June. However, we think the borders of both countries will remain closed until the middle of next year which prevents a full bounce-back of either services exports or migration. That will keep GDP below its pre-virus level in both countries for at least the next year.

30 June 2020
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Dotcom comparisons risk missing the point

Equities will surely remain under pressure so long as the worrying resurgence in new coronavirus cases in the US continues unchecked. But if outbreaks can be controlled across the world’s largest economies without reinstating tough nationwide lockdowns, we think that equities will comfortably outperform again. We are sceptical of the idea in the media that their prior rebound was mainly a retail-driven dotcom-style bubble, vulnerable to bursting almost regardless of what happens on the virus front.

25 June 2020

Resurgence in COVID-19 cases a key risk to our S&P 500 forecast

Our forecast that equity prices will make renewed headway in due course is predicated on fresh outbreaks of COVID-19 being small and localised. That assumption is being challenged by a resurgence in coronavirus cases, especially in the US. Even so, we suspect that the recent pull-back in the S&P 500 will be short-lived unless the increase in new cases there starts to weigh heavily on the economy.

25 June 2020

Financial conditions ease but headwinds remain

After tightening dramatically in March following the outbreak of the coronavirus, our proprietary index shows that financial conditions in India have eased substantially over the past couple of months. This is in large part due to the RBI’s swift and emphatic response. Policy rates have been slashed to record lows, while large-scale liquidity injections have been unveiled. Looking ahead, we think the central bank will keep monetary policy very accommodative for the foreseeable future, which should ensure that financial conditions remain loose. That will help prevent a more severe economic downturn from materialising this year. Nevertheless, India’s failure to control the spread of the virus, as well as the government’s underwhelming support package for households and corporates, means that the economy is still set to suffer a slower and more fitful recovery from the nationwide lockdown than many other countries in Asia.

Economic recovery could continue to favour oil over US equities

With the PMI data released today indicating that the world’s largest economies are on the road to recovery, it is no surprise that oil prices are at their highest since early March, and far above their lows. Provided that the worrying localised outbreaks in some major economies do not result in renewed nationwide lockdowns, we think that oil prices will rise a bit further – possibly doing better than the tech-heavy equity indices that they underperformed previously.

Victory for the Democrats could hold back US equities

The odds that Joe Biden wins this year’s US presidential election, and that the Democrats also win full control of Congress, have risen recently. While we expect US equities to fare reasonably well over the next few years regardless of the result of the elections, we think that a ‘clean sweep’ for the Democrats would hold back the US stock market. That is chiefly because such an outcome would probably mean higher corporate taxes, but there are also some notable risks in a few other policy areas.

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