US Equity Strategy_December 2024Market Review & Outlook

Summary of US Equity Strategy - December 2024 Industry Overview - The report focuses on the US equity market, analyzing various economic indicators and market trends post-election. Key Points and Arguments Market Review & Outlook - The report highlights the performance of the S&P 500 and Russell 2000 indices, indicating a significant price increase of 57.1% for the S&P 500 and 33.1% for Russell 2000 since December 31, 2022 [20] - The report notes that the P/E ratio for the S&P 500 increased from 16.7 to 22.2, while the Russell 2000's P/E ratio rose from 18.7 to 26.6 during the same period [20] Economic Indicators - The nominal GDP growth year-over-year is projected to be around 2.8% to 3.2% for the upcoming quarters, with inflation rates expected to stabilize [28][29] - The report discusses the implications of interest rates, indicating that the 10-year Treasury yield is forecasted to remain around 4.2% [25] Sector Performance - Sector returns for November show that the financial sector led with a return of 13.3%, followed by industrials at 10.3% and energy at 7.5% [14] - The technology sector is noted to have a significant weight in the market, with a manager weight of 27.7% compared to an S&P 500 weight of 32.0%, indicating a slight underweight position [56] Investment Backdrop - High yield spreads and VIX levels are analyzed, showing a slight increase in volatility and risk perception in the market [7] - The report emphasizes the importance of monitoring economic conditions and financial metrics to gauge recession risks, with current conditions indicating a tightening of financial conditions [33][36] EPS Growth and Revisions - Consensus estimates for EPS growth indicate a projected growth of 28.2% for the technology sector in 2024, compared to 24.5% for the broader market [39] - EPS revisions show a downward trend for the S&P 500 ex-TECH+, suggesting potential challenges for non-tech sectors [42] Valuation Metrics - The report discusses valuation metrics, indicating that the S&P 500's NTM P/E is currently at 22.2, which is above the historical average of 17.0 [44] - The report also highlights the cost of capital, with the 10-year yield plus high yield spread indicating a potential increase in borrowing costs for companies [49] Manager Positioning - The report provides insights into large-cap positioning, noting that the largest manager weights are concentrated in major tech companies like MSFT, AAPL, and NVDA, which have significant influence on market performance [53][54] Other Important Insights - The report emphasizes the need for investors to remain vigilant regarding macroeconomic trends and sector-specific developments, as these factors can significantly impact investment decisions [64] - The document includes disclaimers regarding the potential conflicts of interest and the nature of the research provided by UBS [66][67] This comprehensive analysis provides a detailed overview of the current state of the US equity market, highlighting key trends, sector performances, and economic indicators that are crucial for investment decision-making.