Buyable stock before earnings. Caspar Benson/Getty Images
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US stocks still have room to move higher, according to a Wednesday note from GlobalData TS Lombard.
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The firm upgraded its outlook for US stocks and said any economic downturn would be mild.
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Here are eight charts that suggest the rally in US stocks could continue.
According to a Wednesday note from GlobalData TS Lombard, the bullish run in stocks earlier this year is not going to end anytime soon.
The investment research firm upgraded its outlook for US stocks as the economy is showing some signs of an impending recession, and said “equities may have yet to run further.”
“The rising prospect of a re-acceleration in the US, combined with continued deflationary trends, suggest that equities will continue to rally,” said TS Lombard’s Andrea Ciccione and Skylar Koning. The pair added that if a recession occurs between now and the beginning of 2024, it is likely to be mild with limited downside for stock prices.
TS Lombard highlights eight charts to support his bullish outlook on the US stock market.
1. Inflation is falling. This is good for stocks.
GlobalData TS Lombard
TS Lombard said, “Deflation remains the main macro story. Data surprises strongly positive in the US. The Fed is approaching the top of its hiking cycle, although markets discounting the initial cut may be too optimistic.” “
2. Negative Inflation Surprise
GlobalData TS Lombard
“Persistent deflation and the approaching global monetary tightening cycle should provide a positive stimulus for the US economy. Although spending power has lagged behind price growth over the past few years, this is now changing. : The boom may come before the downturn,” TS Lombard said.
3. Credit conditions improving
GlobalData TS Lombard
“Despite the rebuilding of the QT and Treasury General Account (TGA), US financial conditions have continued to ease. Credit spreads – the most reliable indicator of credit conditions – are relatively tight and well-behaved. TGA is now close to pre-pandemic levels. level,” TS Lombard said.
4. Yields are rising because the economy is solid
GlobalData TS Lombard
“The speed of the yield increase matters. When it is relatively gradual (as has been the case in recent months), collateral adjustments can occur without major disruption. The reason for the increase also matters. In 2022 This was primarily the result of a sudden change in monetary policy expectations… This time, the yield increase appears to be, at least partially, the result of an improvement in the macro outlook.”
5. Corporate margin is flexible
GlobalData TS Lombard
“Like the economy, US corporate fundamentals may be at a lower level. From 2021 onwards, margins have been rising and falling in line with inflation. In fact, corporate margin expansion was one of the main causes of inflation in 2021-22. After five consecutive quarters of decline, margins look to stabilize in Q2 2023.”
6. The slump in earnings is usually short-lived
GlobalData TS Lombard
“Earnings have stagnated amid declining margins over the past year, but sales are growing at a good pace. With inflation and margins normalising, what happens next is likely to be a function of the economy: if a recession is avoided and US growth accelerates again, EPS will probably do as well; but if the economy shrinks meaningfully, so will earnings. Under our central case of a mild recession, earnings are expected to flat-line through the end of the year. Should continue and then start to recover,” TS Lombard said.
7. Allocation of US stocks to investors is low
GlobalData TS Lombard
“Investors are short on US equities. Since the recession is still far from over, allocations to those assets are likely to continue to increase.”
8. Investors not enthused
GlobalData TS Lombard
TS Lombard said, “Short-term sentiment turned bullish in July and the market saw buying. Sentiment has largely normalized now; and the S&P 500, if anything, appears oversold today.”
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