Style: Growth / Value
Fears of a hard landing are abating as growth has been surprising to the upside. New worries are emerging, such as the trajectory of disinflation, and the pace and timing of rate cuts. In this environment, it is important to build a resilient all-weather portfolio, which protects against a correction, rising rates, or stubborn inflation but also has exposure to the AI theme.
The equity rally extended into March as hard landing outcome was priced out. It has broadened, as money flowed into less over-loved pockets of the market. Our models signal that margins are about to stabilize, and earnings growth will accelerate as the year progresses. However, companies are raising prices again and the no-landing outcome and fewer than three rate cuts this year are increasingly likely.
The Vicious Troika remains a long-term threat, but over the short term, rates will likely have another leg down on growth concerns, offering support to equities, which are now fairly valued and are no longer overbought. Longer-term outlook remains negative. The Magnificent Seven will likely lead a tactical rebound. Overweight Growth vs Value and FSemis.
Downside risks to equities are building. Rates, the dollar, and energy prices will remain elevated into yearend. This trifecta makes a soft landing less likely than before and hurts corporate profits and multiples. However, high cash balances may offer downside protection against a sharp correction.
