Our September Perspective | Seeking Alpha

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September up close...

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What’s New

We have been talking for quite some time now about the extent to which we believe that equity markets have been priced to perfection. Despite what we have viewed as complacency from investors, we have seen, and continue to see, several

Economic Cycle The US economy has remained resilient despite the aggressive hiking cycle we saw from the Federal Reserve. However, we did see pain in industries including transport and manufacturing. The US consumer has remained strong. The lagged effect of monetary policy may start to be felt in other parts of the economy in the coming quarters, and we are keeping a close eye on the labor market.
Stock Market The US stock market continues to trade near all-time highs. Sentiment now appears stretched and valuations are not compelling. To date, market returns have been driven by multiple expansion. EBIT margins climbed to historical highs in the years following COVID lockdowns; elevated input costs and weakening demand and pricing power are posing a risk to the ability of corporations to maintain earnings at their projected level. Returns will be harder to come by and stock selection will be increasingly important.
Bond Market While growth has remained resilient and inflation remains above target, interest rates have come in off of their peak as the market has started pricing rate cuts from the Fed. Corporate spreads remain well contained, particularly considering the risks we see to the economy.
Important Issues on the Radar Inflation: After surprising to the upside to start the year, inflation has resumed its downward trajectory. However, we would caution that we are still well above target and upside risks remain.
China’s Economy: China has pivoted on the two key economic issues that acted as severe headwinds to growth over the last two years; however, economic growth appears to be stagnating and it will be critical to monitor the policy response in the coming months.

Source: Bloomberg, Wall Street Journal.

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