Multi-Asset Weekly: Major Indexes End Week Mixed, All Eyes on FOMC This Week
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Chief Investment Office10 Jun 2024
  • Equities: Major indexes ended the week mixed on normalising economic data; all eyes on FOMC meeting
  • Credit: UST volatility expected to stay high; IG credit in sweet spot of generating spread premiums
  • FX: BOJ to warn about second rate hike given persistent JPY weakness
  • Rates: 2Y yields generally hovered between 4.7-5.0% and in absence of shocks, this range should hold
  • The Week Ahead: Keep a lookout for US FOMC Rate Decision; Japan Industrial Production Number
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Equities: Investors Weigh Mixed Economic Data ahead of FOMC Meeting

Normalisation on the cards. The S&P 500 and tech-heavy NASDAQ Composite climbed 1.3% and 2.4% respectively, while the Dow Jones gained 0.3% for the week. JOLTS job openings fell more than expected, while the US manufacturing sector weakened further and PCE inflation stalled. The Stoxx 600 added 1.0% while the FTSE slipped 0.4% after the European Central Bank (ECB) cut rates for the first time in five years, taking the deposit rate to 3.75% from a record 4%. ECB guidance was non-committal, with plans to keep policy conditions “sufficiently restrictive for as long as necessary”. The Nikkei 225 inched 0.5% higher, as investors await the Bank of Japan’s (BOJ) rate decision this Friday (14 Jun). The HSI climbed 1.6% on the back of stronger-than-expected exports in China.

Topic in focus: US equities – Persistent strength. US equities have long been a pillar of strength and outperformance compared to other markets, and this trend looks like it is set to continue with the S&P 500 and NASDAQ in double-digit growth territory thus far this year. This strong performance can be attributed to three main factors:

  1. Economic resilience – Despite elevated policy rates, GDP growth and business activity has remained resilient; 1Q24 GDP growth came in at +3.0% y/y while composite PMI for May rose to 54.5, marking its 13th consecutive month in expansionary territory
  2. Robust earnings growth – Equity market performance has also been in large part, driven by robust earnings growth. Earnings growth is expected to hit 10.5% this year, led by stellar performances from Big Tech. In the latest earnings season, majority of Big Tech registered beats on both sales and earnings, and had largely positive forward guidance from management
  3. Reasonable growth-adjusted valuations – At forward PE of 21.0x, US possesses forecasted long-term earnings growth of 8.9% which translates to a PE-to-growth (PEG) ratio of 2.1. This compares favourably to PEG ratios of 3.2 for Europe and 5.5 for Japan
On a sectoral basis, stick with Big Tech for its unmatched growth prospects, financial strength, and economic moats, as well as select upstream Energy plays given elevated oil prices, the persistence of geopolitical uncertainties and resilient end demand of energy products.

Table 1: Strong results, encouraging guidance from US Big Tech

Source: Bloomberg, DBS



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