For all the volatility in equity markets this summer, the outlook for economic growth and company earnings has changed relatively little.
We have been expecting a soft landing in the US for many months, and none of the more recent economic data gives us reason to change that view.
Market concern about the return on artificial intelligence-related capital expenditure was one of the triggers for the recent sell-off, but we remain overweight the tech-heavy US NASDAQ market and are confident in the outlook for profitability.
Analyst estimates generally mirror this stable outlook. Compared with the end of July – before the outbreak of volatility – forecasts for year-on-year earnings growth have changed little (see Exhibit 1). They have eased from +16% to +13% for the NASDAQ, but that is still a robust growth rate.
Markets such as Japan and emerging markets have even seen increases in expected profit growth.
Disclaimer
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
