In our June market update, Moneyfarm Chief Investment Officer Richard Flax discusses the key events set to move markets for the weeks and months ahead, with a focus on corporate earnings, elections around the world and economics.
“First, on corporate earnings, analysts are currently raising their estimates for corporate earnings in the US and Europe, explains Richard. “That’s often a positive signal for equities. However, it’s not all positive news—earnings estimates are still coming down in the UK and Emerging Markets, albeit at a slower pace than before.
“In general, corporate profitability has held up pretty well during this period of slower economic growth and we think that’s been a key driver for equities.
“As we look ahead, we think lower interest rates and the prospect of stronger growth could help to support earnings.
“Secondly on economics. As usual, the focus here is on economic growth and inflation.
“On the growth side, the most recent macro data has been a bit mixed. For instance, manufacturing data from the US came in a bit weaker than expected – suggesting that the economy there is beginning to slow.
“Data from Europe remains decent, but compared to lower expectations.
“On the inflation side, it’s a slow process to get back to the 2% target that most Central Banks focus on. Eurozone inflation came in slightly above forecasts at 2.6% year on year.
“The real issue is around inflation in services – which remain pretty sticky in Europe and the US. We’d guess that the ECB will still cut its policy rate this month, but it’s tough to see a significant decline in the policy rate over the course of 2024, given where inflation is.
“Third, let’s look at elections and their potential effects on markets – a topic I’ll cover in greater depth in this week’s Asset Allocation Observatory.
“Obviously, there’s a lot of attention on the elections in the UK and the US, but we’ve already seen notable elections in India, Mexico and South Africa.
“Each result has brought some measure of market volatility.
“In India, markets cheered the prospect of a decisive victory for Modi, but have drifted back on concerns that his victory was less decisive than initially hoped.
“In Mexico, a stronger-than-expected result for Claudia Sheinbaum raised concerns that she could introduce more left-leaning reforms.
“In South Africa, a weaker-than-expected result from the ruling ANC party has left investors with the prospect of a coalition government – and no clear sense yet as to whether the outcome would be positive or negative for financial assets.
“Different elections and different market reactions.
“In general, we’re wary of trying to call elections – either the outcome or the market reaction to a result. But it’s a reminder that government policy is still an important driver for financial markets – and that’s something we’ll continue to debate as we look ahead to elections in the UK and the US.”
Richard Flax: Richard is the Chief Investment Officer at Moneyfarm. He joined the company in 2016. He is responsible for all aspects of portfolio management and portfolio construction. Prior to joining Moneyfarm, Richard worked in London as an equity analyst and portfolio manager at PIMCO and Goldman Sachs Asset Management, and as a fixed-income analyst at Fleming Asset Management. Richard began his career in finance in the mid-1990s in the global economics team at Morgan Stanley in New York. He has a BA from Cambridge University in History, an MA from Johns Hopkins University in International Relations and Economics, and an MBA from Columbia University Graduate School of Business. He is a CFA charterholder.
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