US Equity Strategy: Market outlook - Presentation

Research evidence excerpt

US Equity Strategy: Market outlook - Presentation

Summary

Market outlook: still bullish, growth not fully priced

EPS driven rally: target 8100 on S&P 500 for '26 and 8900 for '27 as NTM is projected to rise 25% the next 18mo, and the multiple falls 1x.

Valuation well supported: higher 3-5yr forward sales growth and CFROI point to a 24x S&P P/E based on our new framework.

Early-ish cycle: 100bp jump in the forward sales CAGR in 3mo is in the same ballpark as 2020, 2009, and 2002-03 after recessions.

Multiplier effects from steepening demand curves, capex broadening, falling uncertainty, rising cash flow and larger financing needs.

AI flywheel accelerating but valuations are falling

AI cycle early+ unprecedented: we are 2yrs into a Tech spend cycle that have historically lasted 10yrs at ~20% CAGR.

Stay long Semis: at a 25%+ growth rate, Semis trade at 0.9x P/E to sales CAGR and 0.7x P/E to EPS CAGR.

Add Hyperscalers opportunistically: cloud sales backlogs are now > 100% of total sales, and P/E to sales CAGR is <1.5x lowest since 2013.

Capex broadening over consumer broadening

Industrials over Discretionary: > 45% of SPX firms forecast NTM capex up >10% while real wages are running at sub 1%.

Long cap goods: Data center planned capacity up 115% y/y; capital goods orders 10%+ historically coincided with double digit 12mo returns.

Long Transports: Freight cycle turning as mfg exits recession, with truckload pricing improving, rail volumes recovering and fuel costs falling.

Retail/XRTas funding: Real wage growth <2% has historically driven 5% to 10% underperformance, and current real wage growth is <1%.

Private sector releveraging amid fiscal dominance