Three big things you need to know: First, the Duke CFO survey highlights how C-Suite confidence has remained steady, with monetary policy and automation in focus. Second, our new valuation stress test suggests the S&P 500 has been baking in optimistic views on inflation, interest rates, and the Fed. Third, recent funds flow trends point to a lingering desire for a shift in market leadership.
If you’d like to hear more, here’s another five minutes. While you’re waiting, a quick reminder that if you’ve found our podcast, and our research generally, helpful this past year, we’d appreciate it if you took a few minutes to vote for us in the Institutional Investor All-America Research survey in the Portfolio Strategy category. This is the last week voting will be open – the survey is scheduled to close on June 28th. Portfolio Strategy is a highly competitive category, and the results are often used in the financial industry as a litmus test on which strategists are good at their jobs. If you think we fall into that category, and we think that you probably do since you’re listening to this, we hope you’ll take a few minutes to add us to your ballot.
Now, let’s jump into the details of the market.
Starting with Takeaway #1: C-Suite Confidence Remains Steady (a Good Data Point for Stocks), with Monetary Policy and Automation in Focus
Last week was a little light on economic data releases, and it was the Duke CFO survey that caught our attention. We learned four key things:
but remain in a recovery off:
Second, cost pressures/inflation and non-labor cost worries rose, while worries about labor quality/availability and demand eased. Monetary policy remained the biggest concern with no real change in level of concern since the last survey.
Third, more than two third’s said the US election is not impacting investment plans but those saying the event is causing them to postpone, delay or scale down plans was not insignificant. This is something to keep an eye on, as it’s something investors have been asking about in our recent meetings.
Fourth, Automation and AI have been a higher priority for larger firms than smaller firms, highlighting yet another disadvantage for smaller companies.
Moving on to Takeaway #2: Our New Valuation Stress Test Suggests the S&P 500 Has Been Baking in Optimistic Views on Inflation, Interest Rates, and the Fed
ot our base case for year-end:
Wrapping up with Takeaway #3: Recent Funds Flow Trends Point to a Lingering Desire for a Shift in Market Leadership
Flows to US equity funds have been positive recently, with nothing remarkable going on in the aggregate aside from being below peak. But we did notice a number of interesting developments underneath the surface or in other geographies, which all point to a lingering appetite among market participants for a rotation in leadership.
In terms of other countries/regions, as we expected would be the case given recent political dynamics, flows to European equity funds have deteriorated, undoing the improvement that had been seen in recent months. Nevertheless, flows to other areas including Canada, Australia, and EM have been improving and are also turning positive.
Within the US, flows to Large Cap equity funds are still positive but well below peak. At the same time, Small Cap equity funds are seeing improving trends driven by a return of inflows to passively managed Small Cap funds.
In terms of sectors, there are also some early indications of a possible shift in preferences. Specifically, we are starting to see hints of improvement or stabilization in flows to cyclical and commodity sectors (most notably Energy). Utilities flows are still positive but have faded from peak.
Elsewhere in the AI and related industries trade, we aren’t seeing any deterioration in Growth or Tech flows yet but have been struck by how sharply positive the recent inflow trends have been to these areas. We’ll be keeping an eye on these two categories next week to see if there’s been any sudden shift that contributes to our understanding of why the Large Cap Tech trade stumbled as last week came to a close.
We do note that Tech and Growth inflows have been close to or above high-water marks recently raising the possibility that the Tech/Growth trade simply is in need of a rest.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representatives with any questions.
