Today, we’re discussing the results of our quarterly, global, RBC analyst outlook survey conducted in late June. The big things you need to know: First, across the globe our analysts are constructive on performance over the next 6-12 months and see attractive valuations in the industries they cover. Second, Europe and Canada captured the most optimistic performance outlooks among our four coverage regions, but the US was not far behind. Third, our Canadian and US analysts expressed a favorable view of their own respective domestic policy backdrops. On the US midterm elections, our US analysts had a slightly constructive tilt on performance in a Republican sweep scenario, a slightly negative tilt on performance in a Democratic sweep scenario, and a neutral view on performance in a split Congress scenario. Fourth, at the global sector level, performance outlooks were mostly positive and came in stronger than other sectors for Materials and Industrials, but only by a little.
If you’d like to hear more, here’s another five minutes.
Starting with Takeaway #1: Across the globe our analysts are constructive on performance over the next 6-12 months and see attractive valuations in the industries they cover.
• However, they had a neutral or mixed assessment of demand and expressed some concerns about war impacts.
• The performance and valuation assessments were modestly constructive, but not euphoric.
• We see the overall results as supportive of a constructive view on global developed market equities in the year ahead, while also highlighting how there is still room to climb a wall of worry, or opportunity for upside surprises.
Takeaway #2: Performance outlooks were positive in all of our coverage regions – strongest in Europe and Canada, but the US was not far behind.
• Valuation views were also positive in all regions, but were strongest in the US - an improvement vs. our April survey.
• Demand outlooks were more mixed by region, with constructive views in the US and Canada, a neutral view in Europe, and a slightly negative outlook in Australia.
• War impacts were seen as a challenge for all regions, most notably Canada and Australia, and the US to the least extent. Inflation, demand, and commodity prices were the issues most in focus here.
• We think the performance views support the idea that non-US leadership can persist a bit longer, but the other questions on valuation, demand, and war impacts add to our conviction that this may not be a permanent leadership shift and the US can reclaim the lead before too long.
Takeaway #3: Our Canadian and US analysts expressed a favorable view of their own respective domestic policy backdrops.
• Meanwhile, policy views were more neutral in Europe and Australia.
• We also asked our US analysts about upcoming midterm elections: they were slightly positive on performance in a Republican sweep scenario (driven by positive tilts for most sectors ex Consumer Discretionary, Consumer Staples, and Health Care), slightly negative on performance in a Democratic sweep scenario (driven by negative views for most sectors ex Consumer Discretionary, Consumer Staples and Health Care), and had a neutral view in a Republican Senate/Democratic House scenario (driven by neutral views on most sectors ex Health Care, which captured a slightly positive tilt).
Takeaway #4: Performance outlooks tilt constructive for most global sectors, with the exception of Communication Services, Consumer Discretionary, and Consumer Staples which captured more neutral outlooks.
• As we consider forward performance implications, three things jump out to us.
• First, while Materials and Industrials technically captured the most optimistic performance outlooks across the globe, their lead versus other sectors was very slight. We think that helps to explain why many equity investors we’ve spoken to over the past few months have been eager to explore sector ideas - they are looking around for new ideas, but it’s not clear to them what to focus on.
• Second, Energy stood out for capturing a positive score on each of our main questions on performance, valuation, demand, war impacts and domestic policy. This resonated with us because we’ve noticed that equity investors, including those based in Europe, have been more willing to discuss Energy - that dynamic and the survey results make us think equity investors may be more open to investing in Energy in the future.
• Third, the wall of worry seems steepest in the consumer-oriented sectors, where performance outlooks are least constructive, and demand and war impact concerns are most apparent. We suspect that future outperformance in these sectors could be one of the biggest potential pain trades for global equity investors going forward.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
