A mixed picture for global markets
Europe is grappling with macroeconomic challenges, including falling competitiveness and concerns over a potential recession, even as inflation eases. Meanwhile, the U.S. shows positive signs, despite structural weaknesses. In this environment, stock selection becomes critical to uncover resilient companies.
United States: consumption and employment under pressure
While the U.S. anticipates a 14% earnings growth for the S&P 500, challenges remain:
- Labor market slowdown: workforce growth has dropped to 0.4%, with rising layoffs.
- Weakened consumption: pandemic savings are depleted, and delinquency rates on loans are at 2010 levels.
- Housing market struggles: mortgage applications are at historic lows despite elevated home prices.
The Federal Reserve may need to implement further rate cuts to support an economy at risk of stagnation.
China: a giant seeking momentum
Despite fiscal and monetary stimulus, China’s economy struggles to regain momentum. Current measures have fallen short of driving strong growth:
- Low stimulus impact: credit impulses now stand at 3% of GDP, far below historical peaks.
- High savings rate: incentivizing domestic consumption is critical to sustainable growth.
Structural reforms will be essential, but their implementation remains a long-term challenge.
Europe: regaining competitiveness
With a 15% savings rate, Europe has room to boost consumption. However, declining job offers and a slowing manufacturing sector raise concerns:
- Contracting PMI: the composite index fell to 48.9, indicating economic weakness.
- Industrial challenges: Germany’s reliance on low-cost energy and Chinese exports is no longer viable.
- ECB monetary policy: planned rate cuts may be insufficient to prevent a recession.
Europe faces structural hurdles, including the lack of a full banking union and the need for an integrated industrial policy.
Investor outlook
The U.S. remains expensive but promising, while Europe presents opportunities through active stock selection, crucial for identifying companies with global competitive advantages.
Paul Doyle emphasizes the need for careful management: “In such a complex environment, avoiding traps and uncovering hidden gems is essential for solid returns.”
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