Chinese e-commerce platforms might have what you’re looking for (just don’t count on same day delivery). This is also a good time to buy American – S&P 500 earnings are strong, Value is still on sale, and the conditions are right for a summer rally in both bonds and equities.
Slowing growth in China’s retail market has Chinese eCommerce companies looking elsewhere for shoppers.
Larger China-based eCommerce companies have stepped up efforts to expand in most big overseas markets. We find smaller companies more vulnerable while the #1 operator in each geography is typically best placed. Growth is slowing in markets like the U.S. while strong momentum continues elsewhere. Other beneficiaries are logistics companies given the rise of cross-border trade. We see local regulators stepping in to protect local merchants/platforms or customer data and privacy (i.e., U.S. potentially banning TikTok). As for pricing, while the low-price strategy attracts bargain hunters, it also squeezes profit margins for the merchants on these platforms.
Corporate America continues to deliver.
With 83% of S&P 500 earnings reported, EPS (earnings per share) is up 6% year over year (y/y) and guidance has improved from very weak levels. Despite a disappointing manufacturing PMI (Purchasing Managers Index) in May, our strategists see signs of a recovery given strength in BofA’s proprietary indicators and potential for a re-stocking cycle. The improving trend for goods suggests EPS should outpace GDP (gross domestic product) – goods and manufacturing are half of S&P 500 earnings vs. less than 20% for the U.S. economy. Strong capital spending is another positive sign for activity with 1Q capex tracking 8% y/y. After a decade of underinvestment in the “old economy”, Head of U.S. Equity and U.S. Quantitative Strategy Savita Subramanian explains how A.I. investment and re-shoring should help earnings growth broaden beyond mega cap tech. The main risk flagged by companies is slower consumer spending, especially among the lowest 40% income cohort that accounts for 20% of consumption. Savita remains underweight Consumer Staples as goods with lower price points look most vulnerable.
Higher rates would be a risk to some of the positives outlined above but FICC Technical Strategist Paul Ciana believes that the rise in U.S. yields this year is nearing an end.
Paul has been expecting the 10Y (year) yield to peak in the 4.7-5% area by Memorial Day. Yields rose to 4.74% in late April before falling back down, partly on weaker payrolls. If this week’s CPI (Consumer Price Index) pushes the U.S. 10Y yield back to or above 4.7%, Paul sees a buying opportunity with bonds expected to rally in 2H24, regardless of whether there’s one final push higher in rates. Seasonality is favorable too. Since 1963, on average the yield trend peaked by the end of May. Summer favors equities as well, and contrary to the “Sell in May” adage, Equity Technical Strategist Steve Suttmeier finds that June-August is the second strongest 3-month period of the year, with an average return of 3.2%. Performance is even better in Presidential election years, rising 7.3% on average.
