US Equity Strategy Quick Take

Research evidence excerpt

US Equity Strategy Quick Take

aps,INVESTMENT and it was clear to us that the investors we spoke with had also picked up on this dynamic and were

focusing on it in their own post-mortem discussions. One investor also noted that there was simply more

uncertainty emanating from the Fed outlook going forward. We spent a fair amount of time walking

through our own valuation/EPS model that shows how strong earnings could offset the P/E compression

that might be accompanied by a few hikes and lingering inflation challenges, along with our historical

analysis that shows the US equity market tends to perform well in 12-month time frames that see hikes

in the 0-100 basis point range. In response, one investor wondered out loud whether the Fed would

really just stop at a few hikes.

Second, most of the investors we spoke with didn’t seem to be assuming that the end of the war in the

Middle East was a done deal. While the heightened anxiety around the Fed outlook appears to us to be a

challenge for US equities, ongoing skepticism about the end of war helps explain why futures were only

down slightly on Sunday evening amid the latest diplomatic setbacks. Note that within the discussion of

the Middle East in last week’s meetings, we also detected a fair amount of uncertainty about the path

of oil prices and headline inflation from the investors we spoke with.

Other topics covered regularly in last week’s meetings – which all contained their own hints of anxiety –

included trends in AI capex, midterms, whether Semis profit taking had played out yet (we noted Russell

3000 Semi & Semi Equipment valuations remained near post Tech bubble highs on our work, and that in

our mid-May Europe/UK meetings we’d sensed a desire by some investors, who’d been in Semis and had