- Another wave of wage pressures? Despite progress on bringing down inflation from mid-2022 highs, data from online job postings suggests that wage pressures may be reaccelerating. Beneath the surface, growing divergence in wage gains across occupation categories may be adding a layer of complexity to the outlook for labor markets.
- Less stimulus to buoy growth? Alternative data measures point to a largely stable outlook for economic growth, suggesting that the likelihood of a near-term recession remains low. But the end of stimulus initiatives like student loan relief could be a headwind for consumer spending.
- Alpha over beta: If a recession is avoided, equity beta could still face bouts of pressure due to higher discount rates as the yield curve normalizes. But increased dispersion may create opportunities for skillful active managers to generate alpha through security selection.
At the start of 2023, consensus expectations were decisively negative and reflected a high likelihood of a recession. A string of positive economic surprises, along with excitement around artificial intelligence (“AI”), fueled strong equity market performance throughout the first half of the year. By July, a soft-landing scenario for the economy had become the dominant narrative priced into equity markets.
Now, market focus has started to shift towards concerns over policy rates remaining higher for longer. While avoiding a recession still appears achievable, alternative indicators suggest that economic surprises may become more two-sided and could pose challenges to equity investors in the months ahead. This also means that the ability to accurately forecast the direction of those surprises may be increasingly valuable for harnessing alpha opportunities as they surface. In this quarter’s Systematic Equity Outlook, we explore the data-driven insights shaping our views and potential opportunities to generate alpha amid a choppier environment for investors.