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The equity markets of Developed Markets (DM) economies are going through a slow roll in the year so far as recessionary indicators continue to be prevalent while not enough are flashing red to call for a recession in the biggest DM of all: the United States. This colours how the markets can be expected to perform in the next six months.
JPMorgan estimates that while core inflation is likely to cool, the inflation slide is likely to prove incomplete. An actual recession would go a long way in cooling high valuations and increasing affordability. Therefore, in the absence of a recession, the bank forecasts that global core inflation will remain well above 3% through the end of 2024. Of all possible scenarios, the dominant one indicates a 36% probability of a synchronized recession sometime in 2024 due to inflation being persistent and becoming more embedded, thus necessitating policy rates to rise materially further causing sustained tightening. The second largest probability – at 32% – indicates that the US will slip into a “mild” recession by the end of the year, with the rest of the world growing at a sub-par positive pace.
Over in US markets, there has been a flight of capital (of sorts). Bank of America notes that the percentage of S&P 500 constituent stocks outperforming has been drastically falling and is increasingly concentrated to a select few names over the course of the year.
On a historical basis, the likes of tech (both hardware and software) and consumer services stocks have seen the least bit of intra-sector correlation while the likes of banks and REITs have shown the highest level of correlation.
Of course, there’s a very strong empirical basis for the idiosyncrasy of US equity markets: since the 1960s, the peaks of select sectors have been lifting up markets for periods of time. The greatest peak ever seen was in the late nineties during the “Tech” bubble. Since then every peak and drop has seen “Tech” being involved.
The S&P 500 shows enormous amount of dysfunction in that 5 companies have an unduly significant effect on the index – significantly more so than in the heyday of the “Tech Bubble”. Apple alone is now bigger than the small cap Russell 2000.
In fact, when considering the fact that forward-looking Price-to-Earnings (PE) Ratio is trending downwards, individual stock valuations should ideally reflect the same sentiment. As it turns out, there is very little relationship between forward estimates and current valuations.
The net consensus of forward earnings estimates also determines that net earnings per share growth will be nearly flat over the next two years, with “globalization”-related factors, such as lowered taxes in wake of global competition, lowered cost of goods sold due to outsourcing, etc. being key factors for the net margin growth seen in recent years.
With the onset of a recession likely in Q4 2023/Q1 2024, JPMorgan contends that there is an “unattractive” risk-reward for equities while investors are complacent despite bankers’ expectations that the business cycle will decelerate in H2. Bank of America highlights this complacency that the likes of tech continue to show high beta on account of overvaluation while energy stocks’ high beta ignores the risk in expecting high returns.
At least part of the reason why certain stocks enjoy relatively higher valuations is because they’re (again) relatively more liquid. At least some of this is attributable to the fact that buybacks have been very common among leading names in each sector for about a year now.
For more than a decade now, companies – on average – have been spending a higher proportion of their earnings on share buybacks than on traditional capital expenditure (CapEx) that would improve and scale up their operations.
Overall, JPMorgan is treading lightly on DM equities, given the more challenging macro backdrop for stocks in H2 with softening consumer trends at a time when equities are re-rating sharply with lower multiples. Bank of America indicates that sentiment in U.S. equity markets indicates an overall tendency towards a slight bullishness.
Bank of America also notes that the Equally-Weighted S&P500 has an upward trajectory in its forward performance, which implies that tech valuations will begin to drop and the resulting sector rotation will prop up other sectors.
JPMorgan estimates that Emerging Markets (EM) equities will return another 6% up to 2023, driven primarily by 2024 earnings growth or convergence of valuation multiples. Among EM, India is upgraded to “Neutral”, Saudi Arabia is downgraded to Neutral (given the high risk of Energy prices being unsustainable) and China remained at “Overweight”, i.e. there’s far too much expectation that it will perform at highs.
JPMorgan forecasts a decline in yields in H2 2023. Given that inflation continues to remain uncomfortably high, the bank expects that the Federal Reserve is likely to hold off on rate hikes after one round of hikes in July. However, other DM central banks are likely to continue tightening throughout the rest of the year. Overall demand for US Treasuries is expected to remain weak.
Bank of America, on the other hand, states Wall Street strategists’ average recommended weight for bond have been increasing in the YTD and will likely continue. Simultaneously, its private investor clients have been decreasing their long-term exposure to equities.
Earlier this year saw the closure of Buzzfeed News and Vice News while it’s estimated that Disney has lost nearly $900 million in opportunities in their last eight movie releases. Unsurprisingly, Bank of America thus asserts that cable service providers and media companies are now at the highest levels of default risk while gaming, metals and services have the least.
JPMorgan too remains structurally long-term bullish both gold and silver prices and estimates a 11% recovery in the BCOM Industrial Metals sub-index over the course of the year on account of stable demand worldwide.
In summary, while H1 2023 showcased a lot of conflicting signals despite the forward outlook, a strong consensus indicates that market trajectories will be more holistic across sectors in the latter half of the year. This implies the strong likelihood of a number of crests of troughs in the prices of a number of high-conviction stocks and themes. In such conditions, Exchange-Traded Products are ideal tools of choice for the sophisticated investor. Click here to peruse a full list of ETPs on offer.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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The ETP securities are intended for sophisticated investors who (i) are able to monitor their investment in the ETP securities on a frequent basis in line with the recommended holding period; (ii) understand the risk of compounded returns and the increased risk of investment in leveraged products; (iii) can afford to risk losing their investment; and (iv) and have a very short investment horizon in line with the recommended holding period. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer. This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy. Any decision to invest should be based on the information contained in the relevant base prospectus after seeking independent investment, tax and legal advice.
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The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
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Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
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Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
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This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
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Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
