(Bloomberg) -- Earnings growth will continue to underpin equity gains despite more frequent bouts of volatility and mounting risks for financial markets, according to Lazard Asset Management.
The U.S. economy is in much better shape than investors believe and current market valuations suggest, Ronald Temple, co-head of multi-asset and head of U.S. equity at the $216 billion investment manager, told a conference in Sydney. His main thesis is that U.S. jobs growth will remain buoyant for the next six to 12 months.
“Investors should still be overweight global equities, but should be very focused upgrading the quality of what you own,” Temple told the Portfolio Construction Forum Markets Summit 2019. “I do still see a strong case for earnings growth to carry stock prices higher.”
Investors should still be mindful of the risks from protectionism and Federal Reserve policy, he said.
Both equities and debt have rebounded since the end of last year, as a dovish turn from many of the world’s central banks boosted bonds and growing optimism about U.S.-China trade talks bolstered stocks. The MSCI AC World Index has risen almost 10 percent, while the Bloomberg Barclays Global Aggregate Bond Index is up about a percent.
While equities are not cheap, “they are not too expensive,” according to Temple. However, the market was being “too dovish” when it came to the Fed.
“Markets are overemphasizing patience and assuming the rate cycle is over when it’s actually on pause,” Temple said. “ If the economy progresses as I expect, by the second half of this year we will be talking about rate hikes, not rate cuts.”
©2019 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR