Equity Rotation in the U.S.

by
Coco Fang

More than 50% of S&P500 companies have already reported in the U.S. Q2 earning season. 80% of the firms registered a positive EPS surprise. The question for most investors now, is whether the earnings growth results will keep driving positive global equity market dynamics for the 2nd half of the year.

In the last 2 months we’ve seen a rotation that continued with Q2 earnings. Energy, Financials, Materials and Industrials – all of which suffered in the first 5 months of the year – have outperformed the S&P 500 since June. Meanwhile, some of the stronger outperformers on the earnings front – technology and communications services stocks – have underperformed in recent months.

Broader positive returns are good for market breadth, as equity performance in the first half of this year has largely been driven by valuation multiple expansion.  Valuations are now higher than average and the market seemed close to overbought, explaining the small correction we’ve witnessed this week.  Quality exposures and sectors at reasonable valuations are now key in asset allocation.

As markets continue to search for pockets of fundamental value in global equity markets, we believe the laggards from earlier in the year will continue to catch up in the second half.  Financials, small caps and international stocks may well benefit from continued (albeit slower) growth and a bottoming of industrial activity.


DISCLOSURES AND DEFINITIONS

The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.

This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.

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