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Whilst most regions outside the US have seen downgrades to consensus 2024 GDP forecasts (most notably the Eurozone and China), the US has seen growth forecasts rachet higher over the last six months.
Despite the latest US CPI reading coming in above expectation there remains uniformity in view that inflation will return towards (the upper-end of) pre-Covid levels by the end of 2024. China has recently slipped further into outright deflation.
Growth has continued to outperform Value. Small cap has marginally outperformed large cap over three months but saw negative returns in January.
Growth sees a 5yr annualized return of 17.9% vs 10.7% for value.
At its recent meeting the Fed further dampened market expectations over the timing and tempo of US rate cuts in 2024. A reassessment of US interest rate expectations has also spread to other major regions.
Markets are now pricing in c75bps of US rate cuts in 2024, down from c125bps at the start of the year.
The recent rally drove the US 12-month forward PE back above 20 in late January for just the second time since April 2022.
The US cyclically-adjusted PE (CAPE) currently sits at 29.5x, below the highs of the TMT bubble but well-above its 10-year average. Both the US CAPE and 12m forward PE are at levels that are now flashing amber.
We have seen a modest decline in US 2024 EPS growth forecasts on the back of Q4 earnings season but a big rebound in EPS growth is still expected this year following just 2.3% growth in 2023.
The progression of US 2024 EPS estimates looks less healthy when we exclude technology. 2024’s growth rate ex tech is estimated to come in at 9.8% vs 12.2% for US market as a whole.
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