Global economic risks rise under late summer's apparent calm - CFRA
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GLOBAL ECONOMIC RISKS RISE UNDER LATE SUMMER'S APPARENT CALM - CFRA
After early August's turmoil due to an unexpected spike in U.S. unemployment, calm has returned to the markets for now, although CFRA sees rising global economic risks while investors' sensitivity to upcoming data stays high.
"More recent economic reports on inflation, jobs, and retail sales suggest recession concerns are likely overblown for now. However, there are growing risks that the Federal Reserve has waited too long to start a new rate-easing cycle", global head of equity research at CFRA Paul Beland said in a note.
Markets have fully priced in a quarter-point cut next month, and even imply a 35% probability of a half-point easing. FEDWATCH
Corporate earnings reinforced during Q2 that they do not point to a recession, said the research firm, which estimates for the companies on the S&P 500 Index .SPX a growth of 9.2% and 14.7% for 2024 and 2025, respectively.
However, cracks in the consumer spending, the main driver of U.S. economic growth, are emerging as consumers "are having to prioritize necessary goods" with the excess of savings from the pandemic depleted, it said.
In such a fragile environment, CFRA recommends an asset allocation mix of 60% equities (45% U.S., 15% International), 35% Bonds, and 5% Cash.
It suggests equities should be the largest asset class in a moderate risk portfolio, as it currently see the odds of a recession over the next year at about one in three.
However, CFRA warns that the biggest risk to equity valuations will be any deviation in growth expectations coupled with a prolonged weakness in job market.
(Matteo Allievi)
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