- US growth is expected to stabilise on a 2–2.5% trend in the second half of the year; economic indicators recently turned more volatile, but fundamentals remain positive for corporates and households.
- Retail sales have recently moderated, but the underlying trend for consumption should remain positive, thanks to full employment and positive wealth effects.
- The Fed should continue to hike key rates and will probably begin to reduce its balance sheet next year, which has not been fully priced into the bond and money markets.
- In this environment, we expect higher yields and a steeper curve.
- With the very low yields and especially with rates set to rise, we remain concerned about the prospect of a rise in interest rate volatility in USD bond markets.
- We see non-directional bond strategies, risk-premium strategies, and market-neutral hedge fund strategies as an appealing fixed-income alternative for USD bond exposure.
- Earnings estimates have been revised up following a strong reporting season but we continue to underweight US equities slightly as valuations are extended, both in absolute terms and relative to other equity markets.
- In the US, we continue to favour the technology sector, which is trading in line with the overall market despite its solid earnings growth outlook. Healthcare remains another one of our favourite sectors as the potential increase in its earnings power does not appear to have been priced in at current valuations.