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.
