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After a 6% drawdown for the S&P 500 in April, it only took 33 trading days for the index to make a new all-time high. Despite worries of stagflation, we believe there are more positives than negatives in this environment and see three reasons why we should be adding to equity exposures, especially if underweight relative to strategic allocations.

Reason 1: April’s inflation report should support market spirits

Despite the sticky inflation prints to start the year, we believe April’s inflation reading should support market spirits as it confirms that, with a 3.6% year-over-year (YoY) core CPI and 2.8% YoY core PCE, we are squarely in the “last mile” of fighting inflation. While recent readings may warrant a Fed on hold, they certainly do not warrant a hike – as Chair Powell has stated in recent speeches. With goods disinflation, the two remaining drivers of inflation are shelter (5.5% YoY) and car insurance (+22% YoY) – the latter drove half of the supercore increase.1 However, the direction of shelter inflation is still lower, as it continues to ease on a month-over-month (MoM) and YoY basis. Real-time indicators like Zillow and BLS’s own New Tenant Rent index point to further easing. Indeed, using real-time indicators of rent prices like Zillow, core CPI inflation is tracking 3%, or 60 bps lower than where core CPI is today.2 This is quite close to the Fed’s 2% target, especially relative to where we came from a year ago.  

The other reality that the Fed must acknowledge is that interest rates may control the demand side of rate-sensitive sectors of the economy, but they don’t control the supply. The reasons why the last mile of inflation is sticky is because while the Fed policy helped reduce demand for housing (new/existing home sales) and demand for labor (JOLTs job openings), it really can’t affect the supply side of the equation – lack of housing units and lack of labor. It will take time for the supply side to catch up, as new multi-family units come online and additional workers enter the labor force (most likely through migration).

While recent trends have been firmer than we, and the Fed, would have liked, inflation is now in the 2-3% range. This is a notable improvement from a year ago, when we were still in the 4-5% range. To us, this is a lack of “flation” in the stagflation narrative and, in fact, 2-3% inflation can help sustain pricing power of corporates and, therefore, earnings.

Exhibit 1: Inflation is now in the 2-3% range, a notable improvement from a year ago

Reason 2: The fears of stagflation in our view seem overblown

With inflation in its last mile, growth has remained strong. Despite the weak headline GDP print, underneath the surface growth was quite strong. Indeed, private domestic final purchases, which capture services consumption and residential construction, rose a solid +3.1%, which is much stronger than the +1.6% headline GDP and in line with the last two quarters of consumption.3 This trend appears to have continued in the second quarter as the Atlanta Fed GDPNow remains around 4%.4

Exhibit 2: Looking beyond the headline number, the Q1’24 GDP print was quite strong

We also believe this level of activity should be supported by a resilient consumer. Even despite some of the weakness in retail sales, which looks primarily at goods spending, real-time spending data remains healthy and is running above 2022 and 2023 levels. Consumption should be further supported by healthy labor markets and real wage growth returning to positive territory for all income cohorts, a welcomed departure from the last two years.

Reason 3: Growth is also picking up globally

The strength of economic activity has not been limited to the U.S.; there has also been an improvement in global economic growth. Global GDP growth, as proxied by the Bloomberg Global Growth tracker, is running at a +4.3% annualized rate for the month of April.5 This is a stark improvement from the tracker’s +0.8% annualized rate in Oct 2023.6 In addition, we have also seen economists revise their global growth forecast higher throughout the year. Indeed, forecasts for global growth have been revised higher by 30 bps to 2.90% for 2024.7

Exhibit 3: Economic growth is improving globally and is tracking +4.3%

In particular, we are encouraged by the positive impact of lower interest rates on the European economy. Europe has had to absorb the interest rate shock since an average 53% of mortgages are floating rate. In the U.S., this number is only 5%. As the ECB is moving closer to rate cuts, most likely at their June meeting, we see scope for the economy to improve further, especially as real household disposable incomes are forecast to rebound. Easier financial conditions also appear to be supporting growth and lending activity, as seen with the ECB’s latest bank lending survey. Indeed, the survey showed fewer banks tightening credit standards to firms and households, which has been consistent with the recovery in lending volume growth for the region.8

However, it is not just the ECB that is expected to cut rates, we could potentially see the most synchronized global rate cutting cycle in 16 years.9 Indeed, we have already seen Sweden’s Riksbank and the Swiss National Bank cut rates this year.

Investment Implications: Returns worth staying for

After the swift recovery to all-time highs on the S&P 500, we see a path towards 5,500-5,600, especially as earnings continue to inflect higher and broaden throughout the year. With 80% of companies reporting earnings so far this quarter, earnings are coming in better than expected. Indeed, 77% of the companies are beating estimates with an earnings surprise of +7.5%, which is above the 10-year average.10 And with sticky prices, this should support nominal revenue growth.

Even as the Fed maintains rates at a “higher-for-longer” level, markets still perform well during periods of Fed pauses. Indeed, markets return an average of 9.2% during pause periods. And as long as growth remains strong, we see no reason why the current pause should be different.

Exhibit 4: Equity markets have historically performed well when the Fed has kept rates on hold

Therefore, we see risk assets worth staying in and adding to, especially for those investors who are still underweight risk relative to their strategic asset allocation. And where should investors invest? Investors should consider both public *and* private markets to fully capture the opportunities for higher potential returns, attractive income and diversification.

Public Markets: Maintaining our cyclical bias

Within public markets, we continue to like the cyclical sectors: consumer discretionary, industrials, financials, and semiconductors. While the macro environment discussed above is broadly supportive of these sectors, strong earnings growth has also supported their performance so far this year. Indeed, consumer discretionary, information technology and industrials have all reported YoY earnings growth that has been better than the S&P 500.11 We believe this trend should continue, as consumer discretionary, industrials and financials have some of the best earnings revisions ratios over the last three months.12

Private markets: Favorable growth and income opportunities

Looking at the opportunity set in private markets, we continue to favor private equity, private credit and real estate debt asset classes.

In private equity, valuations are rebounding with public markets, but remain below public market valuations. We continue to believe private equity is a way to access themes such as AI, as managers (GPs) are working to infuse AI improvements to drive value creation in their buyout businesses. With lack of IPO volumes, companies are once again staying private for longer. But, exit activity should continue to improve throughout the remainder of the year.

In private credit, floating rate coupons should remain higher with rates on hold for longer (10-12% income yields). This provides a nice pick-up in yields relative to leveraged loans and high yield. Over time, private credit has provided consistent returns through consistent income, low volatility, and prudent underwriting.

Finally, real estate debt, banks are definitely pulling back from CRE lending amidst the large wall of upcoming maturities. But CRE debt funds do have $77 billion in dry powder to help alleviate the funding gap. Investors can earn ~ 9% yields in CRE debt and benefit from a higher place in the capital structure and equity cushions.

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1. Bloomberg, iCapital Investment Strategy, as of May 15, 2024.
2. Bloomberg, iCapital Investment Strategy, as of May 15, 2024.
3. Bloomberg, iCapital Investment Strategy, as of May 15, 2024.
4. Bloomberg, iCapital Investment Strategy, as of May 15, 2024.
5. Bloomberg, iCapital Investment Strategy, as of May 16, 2024.
6. Bloomberg, iCapital Investment Strategy, as of May 16, 2024.
7. Bloomberg, iCapital Investment Strategy, as of May 16, 2024.
8. European Central Bank, Bloomberg, iCapital Investment Strategy, as of May 16, 2024.
9. Bloomberg, iCapital Investment Strategy, as of May 16, 2024.
10. FactSet, iCapital Investment Strategy.
11. FactSet, iCapital Investment Strategy, as of May 6, 2024.
12. Bank of America, iCapital Investment Strategy, as of April 24, 2024.


S&P 500: The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 of the top companies in leading industries of the U.S. economy and covers approximately 80% of available market capitalization.


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Anastasia Amoroso

Anastasia Amoroso

Anastasia Amoroso is a Managing Director and the Chief Investment Strategist at iCapital. In this role, she is responsible for providing insight on private and public market investing opportunities for advisors and their high-net-worth clients. Previously, Anastasia was an Executive Director and the Head of Cross-Asset Thematic Strategy for J.P. Morgan Private Bank, where she identified and invested in emerging technologies and disruptive trends such as artificial intelligence, decarbonization, and gene therapy. She also developed global tactical ideas and implemented institutional-level implementation across asset classes for clients. Anastasia regularly appears on CNBC and Bloomberg TV and is often quoted in the financial press. See Full Bio.

Peter Repetto

Peter Repetto

Peter is a Vice President and Investment Strategist at iCapital, focusing on developing and delivering research, investment ideas, and thought leadership content for external and internal audiences on behalf of iCapital’s Investment Strategy team led by Anastasia Amoroso, Chief Investment Strategist. Prior to joining the firm, Peter spent over eight years at Franklin Templeton Investments, where he contributed to their asset allocation strategy and macroeconomic research. Peter holds a BA in Economics from Fairfield University.

Nicholas Weaver

Nicholas Weaver

Nicholas is an Associate and Investment Strategist at iCapital, responsible for providing insights into investment opportunities across public and private markets. He works alongside Anastasia Amoroso, Chief Investment Strategist at iCapital. Prior to joining iCapital in 2021, Nicholas spent time as an analyst at a buy-side investment firm, where he contributed to equity and private market research. Nicholas holds a Bachelor of Science degree with a double major in Finance and Business Analytics & Information Technology (BAIT) from Rutgers University.