Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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London QT – 30 June – Is This a Bubble?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
US stocks closed at fresh record highs Friday, with the S&P 500 rising 0.5% to a new peak, the Nasdaq 100 gaining 0.5%, and the Dow adding 432 points. Positive earnings (Nike +15%), easing inflation, and a US-China trade framework fueled gains. European stocks pushed up a bit early Monday after a strong rally Friday saw the DAX rise 1.6%, the CAC up 1.8% and the FTSE 100 rally 0.7%. US futures are looking positive again this morning ahead of a holiday-shortened week with Friday seeing the US shut for July 4th.
US core inflation was stronger than expected, delivering a narrative pushback against imminent rate cuts, while consumer spending fell for the first time since the start of the year yet the S&P 500 still notched a record high – I guess it’s bad news is good news. And we know Trump will appoint someone who will cut...inflationary pressures with tax bill should support gold – the old 4D trade of debt debasement and dollar devaluation.
On a sector basis, European defence has got all the attention but check the banks: Barclays hit a 15-year high though Bank of America still says it’s “cheapest” among peers, while Deutsche Bank hit a decade high and JPM notes there are still “several bottom-up drivers for the business going forward”.
BofA “bubble risk” in H2: “We stay overweight “BIG” (Bonds, International, Gold); we are happy cyclical buyers of Treasuries (US macro slowing, Fed will cut, yields will fall… only risk for bonds = equity bubble), flip from US to EU/China fiscal excess = exceptional secular outperformance of US vs International stocks over, gold remains best hedge of coming US$ bear market (+ve commodities & EM too); tactically BofA trading rules nearing sell signals, but bubbles ignore trading rules and absent payrolls <100k and/or long bonds rise >5%, and H2 bubble risk high as Trump/Powell pivot from tariffs to tax cuts/rate cuts to incite US$ devaluation/US stock bubble (NDX rip toward 30k) as cure to reduce US debt burden via boom… best way to gain exposure is via “long US growth/long global value” equity barbell.”
London QT – 30 June – H1 complete: Bubble Risks?
Key Points
- S&P 500 hits fresh record, +10% QTD
- Trump’s tax bill progresses
- US inflation hotter than expected but markets bet on Fed to cut
- Palantir plunges almost 10% in a day
It’s been a heck of a first half but we are ending on record highs on Wall Street and the dollar down 10% - it’s less about US repudiation than about being more tactically US (zeitgeist - I want US micro exposure but not the macro)....tech still the place to be and investors maybe are questioning their European pivot. Lack of breadth in the rally is noteworthy. The S&P 500 has risen 10% in the quarter, catching up with Europe’s Stoxx 600, although the latter is still +7% to the former’s +5% YTD, while the FTSE 100 is almost 8% higher. Less macro uncertainty than April but all-time highs? Retail investors are programmed to buy the dip and have been key to the rally. Palantir shredded nearly 10% no flow reversal...indicative of a market that is driven not by fundamentals but entirely by passive flows.
US stocks closed at fresh record highs Friday, with the S&P 500 rising 0.5% to a new peak, the Nasdaq 100 gaining 0.5%, and the Dow adding 432 points. Positive earnings (Nike +15%), easing inflation, and a US-China trade framework fueled gains. European stocks pushed up a bit early Monday after a strong rally Friday saw the DAX rise 1.6%, the CAC up 1.8% and the FTSE 100 rally 0.7%. US futures are looking positive again this morning ahead of a holiday-shortened week with Friday seeing the US shut for July 4th.
Trump's big, beautiful billpassed a vote to allow further debate in the US Senate with a 51-49 vote, with one Republican Senator against the bill announcing he will not run for re-election. President Trump hailed the Senate's vote as a great victory, referring to the bill as the "great big, beautiful bill." Votes on amendments to the bill continue today. Massive stimulus and underpinning ‘animal spirits’.
US core inflation was stronger than expected, delivering a narrative pushback against imminent rate cuts, while consumer spending fell for the first time since the start of the year yet the S&P 500 still notched a record high – I guess it’s bad news is good news. And we know Trump will appoint someone who will cut...inflationary pressures with tax bill should support gold – the old 4D trade of debt debasement and dollar devaluation.
On a sector basis, European defence has got all the attention but check the banks: Barclays hit a 15-year high though Bank of America still says it’s “cheapest” among peers, while Deutsche Bank hit a decade high and JPM notes there are still “several bottom-up drivers for the business going forward”.
BofA “bubble risk” in H2: “We stay overweight “BIG” (Bonds, International, Gold); we are happy cyclical buyers of Treasuries (US macro slowing, Fed will cut, yields will fall… only risk for bonds = equity bubble), flip from US to EU/China fiscal excess = exceptional secular outperformance of US vs International stocks over, gold remains best hedge of coming US$ bear market (+ve commodities & EM too); tactically BofA trading rules nearing sell signals, but bubbles ignore trading rules and absent payrolls <100k and/or long bonds rise >5%, and H2 bubble risk high as Trump/Powell pivot from tariffs to tax cuts/rate cuts to incite US$ devaluation/US stock bubble (NDX rip toward 30k) as cure to reduce US debt burden via boom… best way to gain exposure is via “long US growth/long global value” equity barbell.”
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