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Our views 23 January 2024

ClockWise: Global stocks move higher on narrow leadership

5 min read

Global stocks continue to climb higher despite concerns around rising bond yields, heightened geopolitical tensions and pessimism around the Chinese economy.

Leadership is from US growth sectors and Japan, and narrow as indicated by the ratio of equal weighted S&P 500 versus market cap weighted S&P 500 going back towards the cycle lows (chart 1).

Chart 1: S&P 500 equally weighted vs S&P 500 market cap weighted going back to the lows

Chart 1 shows the S&P 500 equally weighted vs S&P500 market cap weighted going back to the lows

Source: LSEG Datastream as at 16/01/2024

We remain positive on equities. Sentiment has normalised from December’s high, seasonality is positive and momentum is strong. Rate cut expectations are offsetting concerns around global economic weakness, in aggregate.

These concerns are evident, however, in weaker emerging market equities, lower commodity prices and a strong dollar. We have been negative on commodities given disappointing Chinese demand and a weaker nominal growth backdrop (chart 2), and have also been negative on emerging market and Asia Pacific stocks on similar grounds.

Chart 2: Commodities & Royal London Asset Management nominal growth scorecard

Chart 2 shows commodities and the Royal London Asset Management Nominal Growth Scorecard

Source: LSEG Datastream as at 16/01/2024

Japan remains our most favoured equity region. The yen is weakening once more, as investors reduce expectations of early and substantial rate cuts by the US Federal Reserve. This boosts the earnings of Japanese exporters, leading to outperformance, particularly against emerging markets (Chart 3).

Chart 3: Japan vs Emerging Markets and the yen/dollar exchange rate

Chart 3 shows Japan vs EM Stocks & USDJPY between 2014-2023

Source: LSEG Datastream as at 16/01/2024


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.