With fresh economic data and anticipated interest rate cuts from the U.S. Federal Reserve, the market has a lot to look forward to as the back-to-school season ushers in a time of renewed focus. In this episode, host John Bryson sits down with Matt and Emily for a timely check-in as summer draws to a close.
They delve into the recent uptick in global Purchasing Managers’ Index (PMI) readings and how it might signal shifts in market sentiment. They also explore the current phase of U.S. earnings growth and discuss their strategies for stocks and bonds in the current market landscape. Here’s a glimpse into the conversation.
1 What opportunities do you see in bonds and equities?
Emily: We favor high-quality bonds like investment-grade corporates, mortgage-backed securities, and municipal bonds due to elevated yields and potential duration benefits. In stocks, we think it’s time to shift from riskier market segments to high-quality stocks. We are focusing on sectors like technology, communication services, and industrials, emphasizing companies with strong returns on equity and reasonable PEG ratios.
2 How do you view the current phase of the market cycle with regard to U.S. earnings?
Matt: Earnings growth will have to remain the key driver of equity returns as dividend yields are low and P/E ratios are high. S&P 500 Index earnings have exceeded expectations, but Q3 and Q4 earnings performance will be crucial to watch. Ultimately, we think strong earnings are the best thing this market's got going for itself.
3 How do you interpret the recent bounce in global PMI, especially for U.S. manufacturing and services?
Emily: Global PMI showed a reacceleration in growth in August. The U.S. manufacturing PMI at 53.3 was the highest reading of the year. U.S. services also performed well. United States is showing better relative growth compared to Europe, leading us to favor U.S. equities.