US equities ended the month as good as unchanged. Compared with the wild month of August 2015, August this year looked rather quiet, with the daily transaction volume at its lowest level in almost two years. However, while it looked to be quiet on the surface, there was quite a visible shift within the market, with investors moving away from defensive names such as utilities and telecom in order to buy more economically sensitive names such as financials and technology. All in all, it seems that investors are becoming convinced that the US economy is moving in the right direction and are digesting the likelihood of the Fed soon raising its rates.

Among other potential equity price drivers, the oil price, more than equity prices, proved volatile in August. However, the fall in the barrel price in the second fortnight of the month largely offset the rise visible in the first fortnight, leaving this commodity price only slightly up overall in August.

  • The earnings season was ok and Q3 should show Y/Y earnings growth for the first time in a long time. Energy and currencies are becoming positive drivers for the US market.
  • We will put some focus on cyclicals: industrials, as capex could re-start and for their link with the energy segment. We are buying some energy names but there are no clear supporting signals.
  • We remain positive on IT but ... is there still upside potential, we continue to wonder? IT and Industrials are also becoming intertwined as more and more IT is converging in industrial products.
  • We are becoming overweight on financials (banks) as the Fed is expected to act before the end of the year… but a flattening of the curve is possible.
  • We are playing US staples because of exposure to the Brazilian Real, which has risen a lot.
  • We raised or initiated positions in, among others, Bank of New York, Wabtec, Facebook, CVS Health, Alphabet and Exxon, while reducing positions in Amgen, Medtronic, Time Warner, Estée Lauder and Incyte.
  • Our largest active positions are Pepsico, Stanley Black&Decker, JP Morgan and Colgate.       

The IMF expected world economic growth forecast of around 3.1% in 2016 and 3.4% in 2017 seems very challenging in the current environment. Brexit, the US presidential elections, central bank behaviour and Greece could all impact stock markets going forward, although we think those risks are relatively limited. We are, instead,  focusing more on the stabilising and even slightly improving global economic growth. The low interest-rate environment, reasonably priced equity markets, high free cash generation, increasing dividends and stock buy-backs, and M&A activity should add another layer to our cautiously optimistic equity market scenario.





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