Barclays continues to favour US equities, citing three tailwinds for stocks ahead:
First, much of the increase in valuations is earnings driven.
- Even as NVDA has pole-vaulted to become a $2trn-plus company, its P/E multiple to forward earnings has come down sharply.
- Earnings have not only justified bullish consensus forecasts, but have exceeded them in recent quarters. The same is true collectively of Big Tech; most of the equity rally is based on better earnings, not multiple expansion, especially after last week’s wobble in markets.
Second is the macro outlook
- We expect the U.S. jobless rate to peak at just 4% and without net job losses this entire business cycle. If this is as bad as it gets, it is a very benign trough, especially when an easing cycle is not very far away.
Three, when U.S. equities hit a record high, it is very rare for them to pull back for the rest of the year;
- the factors that drove the rally usually keep going. Further, there are sectors and geographies where the upside is yet to play out fully.”
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A down day today, but buy the dip has been the catchphrase for a long time now:
