The federated Hermes Weekly Markets wrap up is here, Geir Lode, Head of Global Equities has commented on the wrap up.
Geir Lode, Head of Global Equities at Federated Hermes Limited:
In a surprising turn of events, the US economy demonstrated unexpected resilience this week, with quality of some of the cyclical earnings reigniting hopes for a soft landing. Despite this, inflation metrics remain distant from the targeted 2%, signalling that inflation is still higher than the Fed targets. In addition, recent labour market statistics point towards an enduring strength in the jobs market, amplifying speculation around the potential for future interest rate hikes.
This year investors have become more risk seeking. The Volatility Index (VIX) has plummeted 30% since the onset of the year to historically low levels. This decrease signifies a favourable climate for investors to hedge their portfolios at a reduced cost but also highlights complacency among investors.
Despite recent market rallies, broader market participation will be necessary for this bullish trend to continue. Year to date equity market performance has been driven by a few select mega cap companies, but this will need to give way to wider participation across mid and small-cap names, which are now holding more attractive valuations, for the market rally to continue.
Additionally, firms with a clear sustainability strategy are coming to the fore. These companies’ valuations, attractive when compared with their history, signal that they are poised to outperform the wider market. This trend aligns with the growing global emphasis on sustainable business practices and the long-term higher return potential.
