Moving to the next phase

Written by Jude O'Reilly, Senior Research Analyst

01 June 2021

In this week’s Market Pulse, Senior Research Analyst Jude O’Reilly discusses the looming peak in growth and earnings momentum, after the dramatic surge from last spring’s trough. He outlines that we retain a clearly positive equity bias, driven by underlying economic and earnings recovery, but the likely loss of momentum in the data guides the gradual move from early- to mid-cycle exposure within our equity allocation.

  • We think we are going to see the maximum momentum in the global economy over the next couple of months. The euro area re-opening will be at its strongest and the US has the potential to improve from the mixed range of data over the last month. But both are likely to peak out in July. We are already seeing the other major block China begin to level off.
  • Secondly the price moves could indicate a ‘changing of gears’ in the market. We are still seeing strong economic and earnings news, the revision ratio is at the highest level ever recorded and there are still upward revisions to economic growth forecasts. But the market reaction is far more muted, world equities are up just over 1% in US dollar terms in the last month against 11% YTD. Sector leadership has also been shifting around between Cyclicals, Defensives and Quality.  There are all signs that the market may be moving to anticipate the peak of growth momentum.
  • Thirdly, we are looking to adjust our equity exposure tilting it towards sectors, industries and themes that can do well in a mid-cycle. Within Technology,  the Internet theme is well-placed as it’s growth rate will become increasingly attractive supported by both cyclical and structural drivers.
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