Credit Suisse maintains its overweight to value and financials. After the FOMC meeting on January 5, “we see the US central bank raise rates to 2%, potentially 2.5%, by the end of 2023 and move to quantitative tightening in the second quarter. By the end of 2023, the The output gap is likely to be at its highest in 20 years, but monetary conditions at a rate of 2% are marginally above neutral. They should be tighter. The key drivers of the Fed’s policy are both GDP growth, which is likely to be around. over 4%, both of wages (about 50-75bps above the Fed comfort zone). “We think wage growth will go down, but only slightly,” reads Credit Suisse’s “Global Equity Strategy” report.
The Swiss investment bank also sees the 10-year Treasury yield rise to 2.2% by the end of this year (previously 2%, today it rises to 1.793% with Wall Street closed for the holiday). The gap between global SMEs and bond yields remains extreme, while the flow of funds deteriorates sharply. “We also think the terminal rate needed to slow US growth to trend may be closer to 2.5% than the 2% expected by the market. We continue to see slightly higher inflation expectations with inflation structurally higher than the market. last decade, pushing the five-year rate to 2.5-2.75% from 2.4%. We do not see a sell-off above 2.2% thanks to the
US 10-year yields rising to 2-2.25% create a problem for equities. The increase in bond yields affects the growth of GDP (each + 1% takes away up to 1-1.5% of GDP), profits (29% of the improvement in net margins derives from lower rates), of funds and valuation (every 1pp pushes the fair value of the price / profit multiple down by 15%). After the Great Financial Crisis, markets were able to accommodate a 1.7% rise in yields until stocks fell, implying a 2.3% yield. After the Great Financial Crisis, quantitative tightening was not a problem until monetary conditions became clearly tighter. At the regional level, ”
The investment bank therefore recommends maintaining an overweight to European value. Since 2010 the average bear market value rally has been 12% for five months (the normal rally has been 20% for 16 months) versus 8% for 2 months so far. “When bond yields / inflation expectations rise, value typically outperforms. Value is still cheap versus growth, using p / e. In Europe, earnings revisions are better than growth.” We remain overweight on some sectors : construction materials, mining and finance “, he suggested, pointing out, however, that it is too early to add the technology sector.
, Credit Suisse concluded, “and the rate hike should be an advantage until monetary conditions are tightened.” (All rights reserved)
