A shorter leash

Can earnings sustain equities amid uncertainty?

The global economy continues to grow, although the ride appears to be getting a bit bumpier. Higher oil prices and bond yields, tighter monetary policy and geopolitical developments are contributing to uncertainty. We view the earnings environment as supportive and maintain our tactical overweight in equities, while recognizing the risks associated with elevated interest rates and geopolitical developments.

Key take aways

• Global economy remains resilient amid tighter monetary policy. The global economy continues to grow, although the ride appears to be getting a bit bumpier. While higher interest rates and elevated oil prices present headwinds, our base case is that the global economy can withstand higher rates without entering a recession, with limited scope seen for significant additional monetary tightening. 
• Earnings support equities, while diversification remains essential. Resilient earnings and healthy corporate fundamentals continue to support a constructive view on equities, with a tactical overweight maintained. However, as the market has become increasingly concentrated, diversification across sectors, styles, and regions remains critical to navigate market volatility and elevated interest rates.
• Selective positioning in bonds and currencies. The outlook for high-quality fixed income is constructive, with a preference for higher-quality securities and longer duration, recognizing associated risks and limited scope for a large rally at the long end. In currencies, the US dollar receives near-term support from higher rates, though this advantage is expected to recede over the next nine to 12 months as policy paths stabilize.