Interview, Fireside Chat
Hedge Funds Are Cautious on Stocks amid Rates and Energy Volatility
- Europe faces ongoing political and social pressure regarding the French budget and presidential elections in the first half of next year, though competitive threats from higher energy costs are viewed as existing rather than new.
- Global fundamental long/short funds currently maintain net market exposure between 0% and 9%, while European earnings growth is projected at 22% year-on-year for the second half of the year, including 15% excluding energy stocks.
- U.S. earnings growth is forecast to peak at 27% in the third quarter, whereas German companies are expected to align with U.S. earnings growth rates over the next 12 to 24 months despite current PMI disparities.
- The firm anticipates that high nominal growth and corporate earnings meeting reasonable multiples will create a favorable market setup, with AI adoption providing momentum that may counter demographic challenges.
- Hyperscaler revenue growth is expected to lag by 3 to 6 quarters before return on investment returns for large U.S. technology spenders are realized, with AI trade clarity expected as corporate earnings unfold in the third quarter.
- Specific positioning includes being long U.S. mega-cap technology and a basket of German fiscal spend beneficiaries, driven by a view that energy cost impacts are partially priced into European assets.
- Key external variables include next Wednesday's Consumer Price Index data, which may determine if higher yield trends break, and potential developments regarding an Iran conflict break ahead of the U.S. midterms.