Finding Balance in US Equities as Macro Threats Mount

In a market burdened by uncertainties, a flexible approach can help equity investors strike the right balance between short-term risks and long-term opportunities.

Stubborn inflation, high interest rates and recession fears have persisted through 2023, but you wouldn’t know it from looking at the US stock market through the lens of the S&P 500 for much of this year. The broader market, however, tells another story. Equity investors can navigate the uncertainties with a flexible approach that acknowledges real risks and by holding positions in companies with positive earnings revisions and attractive valuations.

Macroeconomic uncertainty seems to be on everyone’s mind these days. In the US, even though inflation has started to decline, the Federal Reserve is struggling to quell rising prices. As a result, monetary policy remains tight, and interest rates are likely to be stuck at higher levels for longer than expected. At the same time, the S&P 500 has gained 13.1% so far this year through September 30.

Despite weakness in the third quarter, with the S&P 500 returning a negative 3.3%, the market has looked surprisingly resilient. However, beneath the surface, performance has been mixed (Display). Technology and consumer-related stocks have led the gains, driven by a small group of companies seen to be big winners from artificial intelligence (AI). Excluding technology, earnings revisions for the market have fallen by 2.4%, implying weakness across much of the rest of the market.

US Equity Market Trends Have Been Mixed