Geopolitical tensions followed by higher oil prices; fundamentals remain strong
US markets were mixed during the month. The recent geopolitical tensions and the discussions with Iran supported the Energy sector, while Consumer Staples suffered the most, with low earnings momentum.
Industrials corrected after its recent peak while we observed some inflows towards Consumer Discretionary and Consumer Staples, and some profit-taking in IT. We reduced our underweight in Consumer Staples as valuations have started to be supportive.
We have kept our cyclical bias, mainly with our overweight in IT stocks (fundamentals remain unchanged), followed by O/Ws in Industrials and Healthcare, back on positive earnings revisions thanks to strong Q1 results.
We reduced our Financials exposure to neutral, as interest rates remain stable and the yield curve has not steepened.
Energy stocks benefited from higher oil prices; Poor results for Financials
Energy stocks supported the European market on the back of higher oil prices while Consumer Staples lagged.
European Staples while being underweighted by global investors and undervalued by the markets are seeing inflows coming back.. The sector might get support from EPS momentum combined with a stronger USD. We are therefore maintaining our strong overweight in the portfolio.
It is too early to raise our exposure to Cyclicals in Europe, but we are monitoring the case closely.
We reduced our Financials exposure to neutral due to poor results across the sector due to margin pressure, cost inflation and poor revenue growth.
Appetite for Emerging Markets but to a lesser extent
The market initially underperformed developed markets as concerns about a potential trade war between China and the US as well as a stronger Dollar led to investors taking profits.
Emerging Markets were supported by Industrials while Health Care lagged. We are still observing inflows towards Emerging Markets but at a lower pace.
We remain constructive on Emerging Markets, at least in a relative way, based on our expectations of only a gradual US interest-rate normalisation, improved fundamentals and earnings-growth revisions
We remain overweight on Technology despite a weak period due to trade-war risks and smartphone weakness.
From a regional point of view:
We have maintained our overweight on Energy, due to higher oil prices, which are now in line with other regions.