AXA IM: Macroeconomics favour quality and low volatility stocks

23 augustus 2024

Aandelen

In Europe and the US, inflation is not far from the central banks’ targets but there are signs that economic growth is slowing. US payroll data was weaker than expected in July, raising concerns that macroeconomic conditions may slow more than anticipated, unsettling equity markets.

A backdrop of slowing inflation and softer macro data means that markets expect interest rates to fall as central back attention switches to managing growth and labour market risks.

In addition, the Institute for Supply Management (ISM) New Orders Index declined in July which resulted in the macro indicator on our factor dashboard switching to a ‘deceleration’ phase.

Equity factor outlook

Given the current macro and interest rate backdrop AXA IM had updated their Global Factor dashboard - see below:

In August, after measuring the macro, interest rates, valuation and technical indicators, the highest ranked factors were found to be Quality and Low Volatility while Value and Momentum were the lowest ranked.

Low Volatility is the most improved factor compared to last quarter - it typically performs well in slowing macro conditions while valuation and technical remain supportive. Momentum has fallen to the bottom of scorecard, though its aggregate score is neutral. Presently few factor scores are at extremes and, for now, there is little difference between the total score for Growth, Value and Momentum.