The capitalization-weighted S&P 500 has rallied 14.3% year-to-date as of 18 August. (ddp)

CIO moves equities to neutral, continuing to see most value in lagging areas of the market.


Stocks have given back some gains in a strong year so far.

  • The S&P 500 and Nasdaq indexes have fallen 4% and 6%respectively from their recent highs.
  • Resilient US growth data led markets to price for further Fed rate hikes, while weaker Chinese growth data has hurt sentiment.
  • Overall US stocks have rallied 14.3% this year (S&P 500), while global stocks are up 11.6% (MSCI AC World).

But we turn more constructive on stocks given growth and earnings resilience.

  • US inflation is moderating, while second-quarter GDP growth accelerated to 2.4% from 2% in the first quarter.
  • We think US inflation will now slow closer to target without a recession this year.
  • Second-quarter US earnings held up better than expected, while corporates provided reassuring guidance. We now expect flat earnings growth (not an earnings recession) this year, and 9%earnings growth for the S&P 500 in 2024.

We move equities to neutral but favor laggards.

  • The risk-reward outlook is more balanced but the range of potential outcomes remains wide.
  • Within US equities, we prefer equal-weighted indexes to cap-weighted ones.
  • Investors looking to re-engage in stocks markets should consider laggards like emerging markets, the value style, and selected opportunities in the Eurozone and Switzerland. Structured solutions may also offer exposure to potential gains with some capital preservation features.

Did you Know ?

  • The capitalization-weighted S&P 500 has rallied 14.3% year-to-date as of 18 August. But its advance has been driven primarily by a handful of mega-cap growth stocks. The equal-weighted S&P 500 has gained 4.0%.
  • The equal-weighted S&P 500 Index holds a higher share of our most preferred US sectors—consumer staples and industrials—than the cap-weighted index.
  • Emerging market stocks (MSCI EM) climbed 2.8% this year, lagging global stocks (MSCI All Country World Index) by 8.8 percentage points.

Investment view

We turn neutral on global stocks, but see most value in areas of the equity market that have lagged this year's rally, including emerging markets and value. Our preferred global equity sectors include consumer staples, energy, industrials, and materials. We favor equal-weighted US indexes relative to cap-weighted ones.


Main contributors - Vincent Heaney, Matthew Carter


Original report - What next for equity markets?, 18 August 2023.