Credit Suisse retains neutral stance on global equities
Multiple factors had improved of late, lending suppport to equities on both sides of the Atlantic, but were unlikely to improve further, thereby capping the upside to be had for the main stock benchmarks in the US and Europe, strategists at Credit Suisse said.
Among those factors, the broker´s global head of strategy, Andrew Garthwaite, emphasised how house prices in China had risen in 65 out of 70 cities and investment by state-run enterprises was running at a five-year high, having recently recorded growth rates of 23% year-on-year, yet "lead indicators look like they are rolling over".
Similarly, Garthwaite described the current state of lead indicators for the US as "unusually ambiguous, and if anything, trending weaker".
He also pointed out the tight correlation that existed between oil prices and almost all risk-trades. However, were the price of crude oil to rise past $50 per barrel then Saudi Arabia would fail to meet its apparent economic/political objectives, including preventing the US from attaining energy self-sufficiency among them.
Making matters worse, in nominal terms the rate of growth in global gross domestic product was at its weakest with the only exception of the period comprehending 2008 and 2009.
Furthermore, US labour was now recovering some "modest" pricing power - which impacts negatively on profit margins - sending the ratio between nominal GDP growth and that of wages to its lowest in the current economic cycle, he explained.
Political risks, relating to immigration, the Italian referendum and the US presidential election, were also "above average" Garthwaite said.
Against the above backdrop, Garthwaite and his team reaffirmed their 'neutral' stance on equities and reaffirmed their year-end target prices for the S&P 500 and Euro Stoxx 50 at 2,150 and 3,350, respectively.