Schroders Equity Lens September 2024: your go-to guide to global equity markets
Inflation has fallen to the sweet spot for equities, especially small caps.
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The September edition of the Schroders Equity Lens is now available:
Summary:
US inflation has fallen below 3%, the historical sweet spot for equities. The odds of beating inflation and average returns in excess of inflation have been highest when inflation has been in this 1-3% range (slides 5-6).
Small caps have particularly enjoyed this environment in the past. Lower quartile, median, mean, and upper quartile returns have all been highest when inflation has been 1-3%. This range of outcomes has been wide, however, and much wider than large caps (slides 6-8). Small caps are riskier.
US and non-US small caps are also trading at record levels of cheapness vs large caps (slide 27).
The start of a Federal Reserve (Fed) cutting cycle is normally good for US equities and bonds. Equities have outperformed bonds which have beaten cash when the Fed has started cutting rates, on average (slide 9).
The quality style tends to do well in all cutting environments, growth does best if a recession is avoided, defensives if one isn’t (slide 10).
Never forget: 10%+ falls happen in more years than not 20% falls happen once every four years, on average (slide 11)
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