US stocks, three risks that markets are underestimating

To date, about half of the companiesà of the S&P 500 announced earnings results and most of them beat expectations. However, this good news may prove to be fleeting. In April, the S&P 500 Index is fell by 4.08% and the outlook for the rest of the second quarter suggests increased volatility, due to various tail risks. If slowing growth, a still-strong labor market and a rebound in inflation further delay the rate cuts, it is possible aputting pressure on earnings estimates in the coming quarters.

3 risks that the markets are underestimating

He writes it Morgane DelledonneHead of Investment Strategy Europe at Global in a long analysis in which he explains that “in this scenario, companies with significant global exposure are likely to be the most vulnerable. For now, the current macroeconomic environment and strong earnings growth appear to support equities, but given the trajectory of recent economic data, we highlight three risks that could emerge”.

First of all – explains Delledonne – “it is possible that the Fed noon rate cuts this year. Conversely, Powell could continue to reduce quantitative tightening to maintain ample liquidity and financial conditions conducive to economic growth. During its May meeting, the Fed announced its intention to reduce the ceiling on Treasury sales from $60 billion to $25 billion starting in June. The cap for mortgage-backed securities will remain at $35 billion.”

The analysis

Second, since the Fed is in no rush to cut, “the divergence between the US and Europe is likely to increase. There ECB and the Bank of England (BoE) will likely cut at least once this year, pushing the US dollar higher against its counterparts. The effect of asynchronous cuts by the ECB or BoE would likely lead to a sharp depreciation of the euro or pound against the US dollar and other major currencies. This would be counterproductive to contain inflation in Europe, as it would make imports more expensive, but it would certainly improve competitiveness and stimulate exports. In this scenario, European stocks could offer investors attractive entry points compared to their US counterparts.”

“higher for longer”

Thirdly, i markets they digested the rate narrative well “higher for longer” also based on optimism about higher future growth, driven by productivity gains from artificial intelligence. Although tech stocks continue to drive stocks, the strong concentration makes the markets vulnerable, tied to this small group of companies and dependent on the prospects of artificial intelligence.

Certainly – concludes the expert – “US stocks they could keep their tmakes it bullish this year, but as long as big tech stocks and AI investments remain strong, manufacturing activity maintains its current pace, and inflation doesn't rise further. For investors concerned about a potential increase in volatility and a stock market downturn, defined outcome strategies, with buffers that partially protect against downside, continue to be particularly attractive. interesting in the current scenario.”