USA: are we at the dawn of a new expansionary cycle?

The bear market is finally coming to an end

Investors reacted very well to the latest US corporate earnings releases, indicating that analysts’ forecasts are finally back at reasonable levels and that most of the downwards revisions to earnings estimates have now been priced in. This conclusion was confirmed by the equity markets’ broadly positive response to the recent earnings season.

On a technical level, both the S&P 500 and Nasdaq broke through important resistance levels, which should bring an end to the bear market that began a year ago and allow the rally that started in early January to continue.

A softer tone from the Fed

The US Federal Reserve softened its extremely hawkish stance considerably in its most recent statement. The Fed is slowing the pace of its rate hikes, and Jerome Powell has acknowledged, somewhat half-heartedly, that disinflation is under way and that a pause in monetary policy tightening could be on the cards after one last hike in March.

Are US equities at the dawn of a new cycle?

Recent developments have been very good news for US stock markets, which could be at the dawn of a new expansionary cycle. And in the coming months, we should see confirmation of investors’ renewed risk appetite. This will underpin equity indexes throughout 2023, at a time when exposure to this asset class is still conservative despite the recent rally.

The Fed’s change of tone does have negative implications for the US dollar, however. The greenback stands to become less attractive given that other central banks – first and foremost the ECB – will keep tightening monetary policy over the next few months. We are therefore reducing our exposure to the dollar in most of our investment grids, except for US dollar-denominated investment profiles.

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