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Market: US equities 'a must' according to Pictet AM

( - The weeks go by, the statistics come in, and the markets can't help but notice the surprising resilience of the US economy.
As a result, at the end of January, the Fed once again dashed hopes of rapid rate cuts.

Recent statistics also confirm the obvious decoupling of the US economy from the Old Continent. The consensus is more optimistic for the US than for the Eurozone", adds Christopher Dembik, Investment Strategy Consultant at Pictet AM, at his monthly press briefing.

Bloomberg's forecasts also illustrate the phenomenon: the financial group expects growth of 1.3% in the USA in 2024 - compared with 0.5% for the Eurozone - then 1.7% on the other side of the Atlantic in 2025, still higher than on the Old Continent (+1.4%).

Nevertheless, 'since Covid, forecasting has become a more hazardous exercise', warns Christopher Dembik, citing uncertain factors such as the structural decline of China, the supply/demand imbalance on the labor market, the revival of industrial policy and the destruction of wealth linked to high inflation.

' All this makes the task more complex, and we're still very cautious", he adds

While rate cuts are still some way off, the specialist believes that easing will prove necessary to avoid destabilization, or even collapse, of the real estate sector.

Monetary policy is too restrictive on both sides of the Atlantic compared with the pre-Covid situation", he points out.

According to Pictet AM, the first rate cuts are likely to take place from the end of Q2, with a total of 2 to 3 cuts on both the Fed and ECB sides. On the other hand, Christopher Dembik believes that "the consensus is for a more brutal 150 to 160 bp decline, without forecasting a recession, which seems to us to be inconsistent in terms of positioning".

Pictet believes that a soft landing for the US economy should materialize, provided that four elements are met.

' The good news is that we already have three of them," smiles the analyst, referring in particular to inflation, which is slowly approaching 2% (it came out at 3.4% in December, then 3.1% in January, editor's note), the rebalancing of the labor market and, above all, productivity gains (+3.2% in Q4), which are absorbing the rise in wage costs and legitimizing relocation policies.

Last but not least, the end of the monetary tightening process - without causing financial instability.

In this particular environment, the specialist is clear: 'if you're looking for yield, the US stock market is a must'.

In his view, the oligopolistic nature of the US market is an undeniable asset. The Russell-1000's top 10 capitalizations account for 31% of the index's performance. In addition, there are ten times fewer IPOs than there were five years ago: this is a structural phenomenon, with all start-ups being bought out'.

The insolent success of the 'Magnificent Seven' bears witness to the structural concentration of the US market.

Of course, this is not healthy, but we have no reason to believe that this oligopolistic situation will not persist, or even strengthen over time", concludes Pictet AM.

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