attractiveness grows with profits and rate cuts

April turned out to be a negative month for risky assetsbut we are confident that they will arrive better times soon“. This is what emerged from an analysis of Strategy Unit of Pictet Asset Management. “The valuations of various asset classes appear more attractive today, after equity investors have lightened their positions, thus widening the area of ​​possible gains – the analysis continues -. Economic conditions are also becoming more favorable, particularly in Europe, where interest rate cuts are expected to begin soon and corporate earnings momentum remains strong.”

Focus on European countries

“Within the segment equityour strategy is increasingly oriented in favor of European countries – says the Strategy Unit of Pictet Asset Management. Our assessment of the economic cycle shows improving conditions both inEurozone as in United Kingdom. Furthermore, we believe that eurozone quarterly GDP growth can reach its potential by the end of 2024, exceeding 1% annualized.” In fact, the analysis explains that domestic economic activity is supported by strong employment and rising wages and commercial conditions are also improving, “a positive signal for exports”. At the same time, the inflationary framework is more stable compared to the United States, which should allow the European Central Bank to start cutting interest rates in June. “It is likely that the Bank of England you start to review monetary policy in the same period,” observe Pictet Asset Management experts.

The situation in the USA

“The situation is different United Stateswhere it is probable that i rate cuts will be postponed at least until September – they point out in the analysis –. The inflationary scenario is not unique: inflation for basic goods is contracting, that of basic services is moving but in the opposite direction, and in March core inflation (excluding rents) rose to 6% on an annual basis. This mirrors the US GDP growth trajectory, with services supporting the economy, while most other sectors show weaker, late-cycle momentum (for example, retail sales remained unchanged last month, while the consumption of goods fell in the first quarter of this year)”. For the experts of the Strategy Unit of Pictet Asset Management, however, “it is unlikely that this resilience in the consumption of services will last if families raise their savings threshold, approaching more normal levels”.

Profits growing in Europe

“Our analysis shows that the Eurozone stocks are becoming more attractive – explain the analysts at Pictet Asset Management –. There are good reasons to believe that the corporate profits could result stronger than expectations market thanks to a favorable macroeconomic and monetary policy context. Generally, an acceleration in economic activity, as measured by purchasing managers' surveys, corresponds to an increase in analysts' 12-month earnings estimates. According to our calculations, eurozone companies are expected to post earnings per share growth of just over 4% this year, above analysts' forecasts (3.1%). Taking this into account, we move European stocks from neutral to overweight.”