From Hope to Growth Phase

“Equity market currently transitioning from multiple expansion driven Hope phase, where market pays for anticipation of future improvements, to Growth phase, where these improvements materialize and earnings become driver of returns at index level. Historically, the PMI has moved above 50 on a more sustained basis around or slightly ahead of the transition from Hope to Growth.”

“Historically, average real price return of equities has been 11% in Growth phase vs. 51% in Hope phase. Real interest rates have risen, and realized volatility and correlation have declined, in Growth phase. The Growth phase has often seen a rise in real interest rates consistent with our forecasts for the next few years, and a continued decline in realized volatility in the early part of the phase. Correlations of performance within equities also tend to be lower in the Growth than the Hope phase leaving a better environment for stock picking.” (Goldman Sachs)



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