Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
The equity market in four charts
Peter Garnry
Chief Investment Strategist
Summary: The rally in global equities has pushed equity valuations above their long-term average increasing the risk for equities should interest rates increase due to stickier inflation in the coming months. Retail investors are also indicating in surveys that they are the most bullish since November 2021 and the number of S&P 500 stocks above their 200-day moving average is at 73.5% suggesting for room for the rally to extend. Finally, the recent bet on the economy to reaccelerate its growth is visible in banking stocks that are fast approaching their all-time highs.
Valuations are on the rise again
Equities have been through in a raging uptrend since early October and as of January it pushed global equity valuation to the highest since May 2022 and levels reflecting optimism on growth and the economy. Based on data since 1995 the average expected 10-year annualised real rate of return is now 1.3% based on the current level of equity valuation. This elevated equity valuation has pushed up the sensitivity to higher long-term interest rates which for now are well-behaved but could get a jolt if signs emerge that inflation remains stickier than expected.
Retail investors are now the most bullish since early November 2021 which was around the peak in the equity market. The rate of change has been quite dramatic and has gone hand in hand with equities rallying since early October of last year. But with big moves and elevated sentiment comes a higher risk of a reversal in the market.
Another way of expressing investor confidence is to look at the percentage of S&P 500 companies that are trading above their 200-day moving average. As of last week that number reached 73.5% which is the highest since December 2021 expressing the same level of risk sentiment as the bull-bear spread. This level is not quite in the exhaustion area which typically kicks in above 80%, so this indicator could suggest that there is room for more gains in equities.
Economists are confused these days because the US leading indicators are suggesting that the US economy should slow down and slip into a recession, but instead more indicators are beginning to suggest that instead of a soft landing the economic plane is instead taking off again. US total loans and leases on the balance sheet of commercial banks are increasing at a faster rate than during the years leading up to the Great Financial Crisis indicating that the US economy is actually experiencing a credit boom. Higher credit growth on top of higher rates is the perfect fuel for the engine that powers banking earnings and thus the global banking index is fast approaching its all-time high.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)