NN IP: The growth trajectories of the US and Europe diverge

NN IP: The growth trajectories of the US and Europe diverge

Outlook
Outlook vooruitzichten (08) weg storm crisis

The stock market rally is showing no signs of slowing down, with investors feeling bullish about companies’ strong earnings prospects and reduced uncertainty about central bank actions. They seem to be choosing to ignore inflation expectations and volatile rates markets for now.

Meanwhile, the European economy seems to be facing more headwinds than the US. Against this backdrop, NN Investment Partners (NN IP) moved overweight in UK Gilts after the Bank of England passed on the opportunity to hike rates.

Maarten-Jan Bakkum, Senior Emerging Market Strategist at NN IP shares the following in the latest HouseView:

"The near-term outlook for equities should be supported by reduced central bank uncertainty, at least until the ECB’s meeting in December. Moreover, US economic data is still strong, with the economic surprise index for the US back in positive territory for the first time since July.

We cannot stress enough that earnings estimates for 2022 look too low taking into account the strong nominal GDP growth we expect around the world. While supply chain disruptions are expected to last until the middle of next year and may hurt the profitability, the general view is that most companies have enough pricing power to make sure that higher input costs will lead to higher output prices.

For this reason, we expect another earnings upgrade cycle in 2022. We are still adopting a cautious stance in our multi-asset model portfolio, with a moderate underweight in US Treasuries, a newly opened overweight in UK Gilts and neutral positions in risky assets. We are tempted to move overweight in equities again, mainly due to good earnings prospects, but we do not want to chase the rally that has been so strong in recent weeks."