Capital IdeasTM
Investment insights from Capital Group
Equity
Marc Nabi
Maria Karahalis
David Polak
The dominance of megacap tech stocks has prompted debate around how much higher equity markets can go, especially in the US.
In our view, even accounting for the recent climb in stocks, overall valuations do not appear to be stretched. Global corporate earnings have bounced back from a near trough and are expected to improve further from here. Moreover, moderating inflation and declining interest rates could create a highly favourable backdrop.
Corporate earnings set to rebound
Estimated annual earnings growth
Estimates as at 31 December 2023. The chart shows estimated earnings growth for each region. Estimated annual earnings growth is represented by the mean consensus earnings per share estimates for the years ending December 2023, December 2024 and December 2025. U.S. = S&P 500 Index. Europe = MSCI Europe Index. Japan = MSCI Japan Index. Emerging markets = MSCI Emerging Markets Index. Sources: Capital Group, FactSet, MSCI, Standard & Poor's
While we may see some volatility related to earnings, elections, the pace of interest rate cuts, or geopolitical events, we believe that equities are in a sweet spot.
As earnings growth recovers in non-tech sectors, we could see a more diverse set of companies garner investor attention. Meanwhile, companies in the S&P 500 Index excluding financials are holding cash at levels that are near 10-year highs which could fuel stock buybacks, M&A activity or dividend payments.
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Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.