Brown Advisory’s Post

U.S. equities could rally over the coming four weeks, Goldman Sachs strategists said Monday, citing positive technical equity dynamics and a tailwind from corporate buybacks. “The pain trade for equities is higher and the bar for being bearish at the beach into a Labor Day barbecue party is high,” strategists said in a note to clients. They note that the trend-following rule-based systematic funds have shifted from $450 billion long in July to $250 billion long currently and are in the process of re-leveraging. Moreover, Goldman also pointed out the potential for a 'green sweep' for commodity trading advisers (CTAs), which could result in significant buying activity in the stock market regardless of market direction. The analysis predicts that in a stable or rising market, approximately $27 billion could flow into US stocks, while a declining market could still see about $22.9 billion in inflows. In addition, the unwinding of put positions by target volatility and volatility control funds has been observed, as evidenced by the VIX index recording its largest 9-day volatility drop in history. Traders are also positioned long gamma again. These factors are further supported by corporate demand, with an estimated $6.62 billion in daily purchasing power until the corporate blackout period ends on September 13, according to the note. However, there is a cautionary note regarding the period after September 16, as historically, the second half of September has historically been the worst two-week trading period of the year. Beyond this, strategists remain optimistic for the S&P 500, projecting it could reach 6,000, with November and December being key months driving the growth. In a similar vein, recent economic data and earnings reports have reinforced JPMorgan Chase & Co.'s confidence in a continued rally for US stocks through the end of the year. The Wall Street bank highlighted last week's events as reinforcing a bullish perspective, with signs of economic expansion, positive earnings growth, and expectations of a more accommodating Federal Reserve policy. “While upside appears to be more muted than when we adopted this stance earlier this year, there remains material upside,” JPMorgan notes, emphasizing that the S&P 500 could set new records followed by a strong fourth-quarter performance. JPMorgan's analysis points to an average 4.2% return for the US stock benchmark in the final quarter of the year, based on data from this century. Potential risks to their bullish view include Japan's inflation data, geopolitical events affecting oil prices, the US election, changes in the Federal Reserve's commentary, and weak seasonality. #INVESTMENTBANKING #HEDGEFUNDS #PORTFOLIOMANAGMENT #CEOS #CIOS #CFO #CFOS #CIO #ASSETMANAGEMENT #FED #INFLATION #ECONOMY #EUROPE #ASIAPACIFIC #MARKETS #COMMODITIES #ECONOMICS #PRIVATEEQUITY #MONEY #VENTURECAPITAL #INVESTING #BANKINGINDUSTRY #TREASURY #FINANCE #TRADING #STOCKS

Are US equities overvalued?   That's one of the most common questions we've heard from clients in recent weeks as the S&P 500 has hovered around all-time highs.   One way to look at this is the cyclically-adjusted price-to-earnings ratio (CAPE), which shows S&P 500 valuations near levels only seen just before some major crashes of the past (e.g. the Wall St Crash of 1929 and the bursting of the dot-com bubble, excluding pandemic-related shocks).   So at first glance, yes, valuations do seem elevated.   But we think they’re justified.   Why? Well, the ‘E’ in CAPE – earnings – have continued to deliver against high investor expectations this year, are on an improving trajectory and are broadening out beyond the ‘Magnificent 7’ (some of the largest and best-known US tech companies).   Macro drivers such as resilient economic growth, falling inflation and central bank rate cuts are reasons to believe this earnings growth can continue to meet – or even surpass – investor expectations in the coming quarters.   We also take other valuation metrics into account to build a more comprehensive picture.   The amount that a company reinvests through capex to grow its business can greatly impact the earnings figure that forms the denominator of its P/E ratio, so it’s not always the purest indicator of profitability.   Return on equity (ROE) is considered by some investors to be a more accurate representation, especially for high-growth companies, such as some of the US tech mega caps including in the Nasdaq and the S&P Top 20.   The S&P 500’s ROE is at 17.8%, having remained relatively flat this year and close to its post-pandemic peak (19.6% in June 2022), vs. 25.9% for the top 20 companies in the S&P 500. (Source: Bloomberg, as of 19th November 2024).   Investors looking to invest through a factor lens may note that momentum and quality – two factors we currently favour – offer even higher ROE, at 20.6% and 32.5%, respectively, for the MSCI USA Momentum and Quality indices. (Source: Bloomberg, as of 19th November 2024).   Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. #equities #ETFs #flows #assetallocation #indices #SPTop20 #Nasdaq #Quality #Momentum

💫 Thank you Francine Lacqua for having me on Bloomberg’s ‘The Pulse’ earlier this week to discuss markets post US election, clients’ portfolio positioning and where to go from here in relation to ‘US exceptionalism’ 💫   Three points from me …   1️⃣ Sentiment towards US equities has been very strong and we see reason for this to continue, for now.   — Global investors are buying US equities with conviction: YTD, we have seen $639.6B in global flows into US equity ETPs, including $98.6B in November so far – the highest inflow month this year.* Valuations may appear stretched, particularly in US large and small caps, yet for now, earnings seem to be justifying the premium - and the US economy continues to reap significant benefits from the structural tailwind of the AI transformation!   — So … we are overweight US equities, but will be watching for developments in relation to trade and fiscal policies, as well as continued delivery on the earnings front.   2️⃣ There could be benefit in a more nimble approach to US equity market concentration vs. breadth, tactically pivoting between strategies, and the toolkit available to investors supports this.   — The ‘Magnificent 7’ – among the largest and best-known US tech companies – continue to be key for market sentiment, but 2025 earnings projections for equal-weight and market-cap-weight S&P 500 now look roughly in line, suggesting that the broadening of earnings strength could continue.   — As the news flow unfolds, we may see investors tactically pivoting between these strategies, including through ‘top 20’ S&P 500 exposures.   3️⃣ What about home biases for non-US investors? The jury is out!   — On a fundamental level, how does the ‘US exceptionalism’ we are witnessing impact portfolios of non-US investors, who tend to have a bias towards their home markets and therefore may be under-exposed to US stocks? How much have these biases cost so far, and how much will they cost going forward? Are there implications for portfolio allocations and how they could potentially need to evolve? Stay tuned on this front for more to come and check out the video (link in the comments 👇🏻, starts at 4:30)! Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. * Source: BlackRock and Markit, as of 18 November 2024.

𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬 𝐢𝐧 𝐃𝐫𝐚𝐠𝐨𝐧 𝐘𝐞𝐚𝐫: 𝐒&𝐏 𝐫𝐞𝐚𝐜𝐡𝐢𝐧𝐠 𝐧𝐞𝐰 𝐡𝐢𝐠𝐡𝐬, 𝐰𝐡𝐚𝐭 𝐭𝐨 𝐞𝐱𝐩𝐞𝐜𝐭? Investing in equities and bonds when the S&P (Standard & Poor's) index is at new highs 5,096 as of 29th Feb 2024, presents both opportunities and considerations for investors. Equities: When the S&P index reaches new highs, it often reflects optimism in the market about the economy and corporate performance. This can signal potential opportunities for equity investors, as strong market sentiment typically drives stock prices higher. However, investors should be cautious not to chase momentum blindly. It's essential to assess whether the market's optimism is justified by underlying fundamentals or if it's fueled by speculative behavior. Additionally, reaching new highs doesn't guarantee sustained upward momentum. Market corrections and pullbacks are common occurrences, even during bull markets. Therefore, investors should exercise discipline and maintain a long-term perspective. Diversification across sectors and asset classes can help mitigate risks associated with market fluctuations. Bonds: When the stock market is at a new high, some investors may seek refuge in bonds as a way to reduce portfolio volatility. Bonds typically provide income and act as a hedge against equity market downturns. However, investors should be aware that bond prices move inversely to interest rates. If the market perceives the new high in the S&P index as a signal of economic strength, it could lead to expectations of rising interest rates, which could negatively impact bond prices. Furthermore, reaching new highs in the stock market may indicate diminishing value in bonds relative to equities. Investors may need to reassess their asset allocation and risk tolerance to ensure their portfolio remains aligned with their investment goals. Risk Considerations: Investing in equities and bonds when the S&P index is at a new high requires careful consideration of risk factors. Market sentiment can shift quickly, and unforeseen events could trigger volatility. Investors should be prepared for potential market corrections and have strategies in place to manage risk effectively. Conclusion: Investing in equities and bonds when the S&P index is at a new high presents both opportunities and challenges. While optimism in the stock market may drive equity prices higher, investors should remain disciplined and cautious of speculative behavior. Diversification and risk management are crucial elements of a well-balanced investment strategy, particularly during periods of market exuberance. Want to know more? Connect with me: Zack Ng CFPC® Pleasure to serve you in your investment / retirement goals #investments #equities #bonds #stewardship

Global Supply of Equities Shrinks at Fastest Pace in Decades A recent Financial Times article discusses a significant shift in the landscape of global financial markets, characterized by a marked reduction in the supply of public equity. This trend has been the most pronounced in over a quarter of a century, with several key points underscoring the current state and potential implications for investors and companies alike: 1. Rapid Decline in Public Equity: There has been a net decrease of $120 billion in the global supply of public equity this year alone, significantly outpacing last year's reduction of $40 billion. This represents the fastest shrinkage in at least 25 years and marks a third consecutive year of decline. 2. Preference for Share Buybacks: Companies are increasingly favoring share buybacks over issuing new shares or pursuing initial public offerings (IPOs). This trend continues despite what would traditionally be considered encouraging conditions for equity offerings, such as rising stock markets and relatively strong economic indicators. 3. Economic and Geopolitical Uncertainties: Analysts from JPMorgan attribute the cautious stance of companies to persistent economic and geopolitical uncertainties, alongside concerns about a potential resurgence in inflation. This apprehension appears to be holding back a more robust activity in equity offerings. 4. Lackluster IPO Activity: Despite a strong performance in stock markets, with indices like the S&P 500 and the MSCI All-Country World index posting significant gains, IPOs and other share sales have fallen short of forecasts. High-profile IPOs, such as that of Reddit, have not catalyzed a broader wave of public listings. 5. Decline in Number of Listed Companies: The article highlights a substantial decrease in the number of listed companies, particularly in the US, where the count has dropped from over 7,000 in 2000 to fewer than 4,000. This trend is mirrored in Europe and the UK, reflecting a broader hesitation towards going public amid current market conditions. 6. Shift Towards Private Funding: With the decline in public equity offerings, smaller companies seeking to raise funds are increasingly turning to private markets or venture capital. This shift is partly attributed to the growth of private equity and the perceived regulatory and financial burdens of public market listings. 7. Long-term Market Implications: The preference for share buybacks and the cautious approach to public equity offerings are indicative of a deeper transformation in corporate financing and growth strategies. This shift has potential implications for market indices and the investment landscape, affecting how fund managers and investors approach long-term benchmarks. These points underscore the complex interplay between market conditions, corporate strategiesn and increasing regulatory burdens for public companies, highlighting a significant shift in the dynamics of global financial markets

U.S. EQUITIES NOW COMPRISE ALMOST 70% OF TOTAL WORLD MARKET CAPITALIZATION. IS THIS THE TOP? The rally by U.S. stock exchanges, and the persistent strength of the economy, since March 2009 has been almost without precedent for a large, developed nation. It must be noted that the advance has been aided, in no small measure, by enormous monetary and fiscal stimulus interventions following the 2008 Financial Crisis and the 2020 COVID pandemic. Nonetheless, the market appreciation has been impressive. The market advance since 2009 has been led by an unusually small group of tech-related stocks, first the FAANG+ group and more recently the Magnificent 7. It is the American leadership in technology that accounts for much of its dominance of equity markets today, as it did at the previous peak of its influence at the turn of the century (driven by the Internet Bubble stocks). While American technology leadership seems assured for the foreseeable future, the dominance of a small group of mega-cap stocks (with their premium valuations) does not. A shift in investor sentiment away from the Magnificent 7, and their small coterie of lesser stocks, could have substantial effects on the major U.S. exchanges given their enormous market weights. At the time of writing, the top 8 stocks in the S&P 500 represented over 30% of the index! This enormous market weighting by a small group of stocks is a potential catalyst for significant market volatility, as is the fragility of the global economy and the steadily deteriorating geopolitical landscape. Markets may continue to rise for some time, but alert investors will be watching for signs of the change in trend that must eventually come. Dangers and opportunities lurk when markets reach extremes The volatility we anticipate will be jarring to many investors, especially after the period of complacency that has gripped markets in 2024, but with the associated risks will come the inevitable opportunities presented by surges of volatility. Investors should be attentive to signs of a trend change in markets and practice sound risk management techniques to preserve the bulk of accrued profits. The balance of 2024 is likely to see a substantial change in market dynamics, with alert investors prepared to seize new profit opportunities across markets and asset classes. As always, we’ll be sharing our analysis of unfolding events and investing activities each month in the pages of the Global Investment Letter. If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues of our paid service and to receive our free weekly investment comment (exclusive to those who signup) please visit: https://lnkd.in/gJEVvFtv

The U.S. stock market's recovery from the 2022 bear market and promising short-term prospects might seem like a cause for celebration. However, for long-term investors, particularly those nearing or in retirement, the outlook for U.S. equities paints a more cautious picture.

Quick Investment Markets Update: Last week, the equity markets experienced a notable pullback after a strong post-election rally. Major indices like the S&P 500, Nasdaq, and Russell 2000 all posted significant losses, with the Russell 2000 down over 4%. This decline was driven by rising bond yields, which reached multi-month highs, and comments from Fed Chair Jerome Powell suggesting a more cautious approach to rate cuts. Additionally, there was a noticeable sector rotation as investors moved out of Information Technology and into more cyclical sectors like Financials, Industrials, and Energy. Despite the pullback, the overall market remains up for the year, supported by strong economic fundamentals and resilient consumer spending. Fixed Income Bond yields surged to multi-month highs, with the 10-year Treasury yield briefly surpassing 4.50% before closing around 4.44% on Friday. The Federal Reserve delivered a 25-basis-point rate cut but emphasized inflation remains somewhat elevated and the economy is firm. Economic data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), showed persistent inflation, particularly in services. The probability of future rate cuts decreased, with the CME FedWatch tool suggesting a lower likelihood of a December rate cut. Equities All three major large cap indices experienced pullbacks ranging from -1% to -3%, after last week’s strong rallies, with rising bond yields and Fed Chair Powell’s comments about their planned cautious approach to future cuts contributing to the decline. Most sectors were down for the week, with Healthcare (-5.54%), Materials (-3.33%), and Technology (-3.18%) posting the biggest losses. Energy (+1.42%) and Financials (+0.58%) were the only positive gains for the week, while Utilities came in flat for the week and all remaining sectors posted losses of -1% to -2%. From a size perspective, small-cap stocks gave up the most ground falling -3% compared to large- and mid-cap with losses of -2.1% and -2.7%, respectively. From a style perspective, value stocks held up better than their growth counterparts across all market caps, with the largest outperformance in the large cap segment. Alternatives Oil prices slid down around -4% last week due to weaker Chinese demand and a increasing expectations of slowing in the pace of U.S. Federal Reserve interest rate cuts. Gold prices continued to retreat falling just over -4%, their biggest weekly decline in over three years, as expectations of less aggressive interest rate cuts by the U.S. Federal Reserve fell. Bitcoin's price reached a new record high for the second consecutive week, trading around $91,000 on Friday afternoon after briefly hitting $93,000 earlier in the week, up from approximately $77,000 the previous week.

#GeneMelamudCFP #InvestmentStrategy The S&P 500 is on track to outperform global equities in eight of the last 10 years, and U.S. equities make up ~49.4% of the global equity market cap, which is a new record high. CIO Larry Adam provides insight into this and other market-moving headlines in Up & Adam #InvestorsEdge #FinancialAdvisorLargo