Multi-Asset Weekly: Amid Broadening Rally, US Equities Rise to First-quarter Highs
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Chief Investment Office1 Apr 2024
  • Equities: S&P 500 and Dow Jones Index close at all-time highs in 1Q
  • Credit: Economic and fiscal concerns highlight that elevated short-term rates are unsustainable
  • FX: DXY will soften again if Friday’s US jobs data disappoints
  • Rates: Current pricing in USD rates is appropriate; pricing at front of the curve has turned hawkish
  • The Week Ahead: Keep a lookout for US Change in Nonfarm Payrolls; China PMI number
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Equities: US markets post strongest first-quarter performance

US equities hit all-time highs to close out the quarter. The Dow Jones Index and the S&P 500 rose 0.7% and 0.4% respectively for the week, capping off equities’ best start to the year since 2019. Evidently, the rally is broadening as the equal-weight S&P 500 rose 1.9%, well ahead of the 0.7% from the market-weighted S&P 500 index. The University of Michigan’s consumer sentiment was also revised upwards to its highest level in over two years, reflecting consumer’s steady economic perception which could bode well for market stability. Across the pond, the Euro STOXX 50 and DAX rose 1.0% and 1.6% respectively, despite Germany’s economy showing signs of significant slowdown and UK slipping into recession in 4Q23.

In Asia, SHCOMP fell 0.2%, reflecting the ongoing property sector downturn in China that is weighing on consumer confidence. Meanwhile, the focus in Japan was on the depreciating yen – JPY hit its weakest level against the USD despite the Bank of Japan (BOJ) raising rates to positive territory for the first time in 17 years. The Nikkei 225 was down 1.3% for the week.

Topic in focus: US equities – Maintain conviction view on tech-related plays; turning positive on energy. Our high conviction calls on tech-related sectors have paid off handsomely and we remain constructive on this space. Despite the strong run-up since late last year, we believe the strong momentum will persist given:

  • Robust earnings momentum: The technology sector is expected to deliver earnings growth of 21% this year, far superseding the 10% growth expected from the broader market. Using the NYSE FANG+ Index as proxy, the momentum for Big Tech is even stronger, with earnings growth expected at 44% in 2024.
  • Strong cash holdings: Big Tech companies possess large cash holdings that will empower them to pursue M&A opportunities to deepen their product/service offerings as well as enhancing their “moat” qualities. Today, the total cash holdings of the Magnificent Seven stand at ~USD240bn.

Separately, we are also upgrading energy to overweight given: (1) improving ROE, (2) high dividend and buyback yield, and (3) light portfolio positioning among investors. This overweight will be funded by our downgrade of financials to neutral.

Figure 1: Tech possesses superior earnings momentum


Source: Bloomberg, DBS


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