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The economic outlook remains in slowdown judging by the forward-looking indicators we measure. While this is favourable for risk assets for the time being, the index has been trending downwards for several months and is at risk of deteriorating further.
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Valuations have fallen back into “fair” territory following September’s equity market sell off. Nonetheless, downward revisions to earnings expectations are likely given a deteriorating economic environment, raising the risks of upward pressure on valuations going forward.
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Momentum for equities remains negative by the 10-month moving-average metric that we favour. This is cause for caution.
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Sentiment in markets remains overbearish, as equity fund flows remain turned bearish again. Usually this would be a buying signal but when paired with negative momentum and a precarious economic climate, it is best to not act just yet on this signal alone.
