This month we unpack why US earnings growth has been so much stronger than growth in the underlying economy would imply.
Key Messages for Investors
- The fluid geopolitical backdrop due to the ongoing US-Iran conflict is complicating the outlook for inflation, growth and monetary policy.
- Global equity investors are largely looking through events in the Middle East, given the much bigger medium term thematic of AI capex. We maintain a balanced exposure to US equities.
- US earnings are growing a lot faster than nominal GDP growth would normally imply. The strength is real, but an unusual dynamic has propelled earnings growth to a rate we expect to slow before the capex cycle peaks. Expect larger swings in EPS than the macro backdrop would normally produce.
- Headwinds remain domestically and we retain our cautious stance on Australian equities. That is a view based primarily on the outlook for the macro economy.
- The sharp rally in emerging market equities over an extended period removed the valuation case for an overweight without creating one for an underweight. We have moved back to neutral.