Standard Chartered maintains its overweight rating on global and US equities, but the forces supporting the market are no longer as comprehensive as before. Its equity-bond model lowered its equity overweight rating from 24% to 16% in July.
Fundamental factors such as economic data, upward revisions to corporate earnings, and PMI new orders remain relatively strong; however, valuations are no longer cheap, and the market's technical outlook and the breadth of the rally have shifted from supportive to neutral.
Approximately 85% of global stock markets remain above their 200-day moving averages, but the net gainer ratio has risen to 1.4 standard deviations above its historical average,
meaning that the space for further unilateral expansion in the short term is narrowing, and the bullish logic is shifting from a combination of earnings, valuation, liquidity, and technical factors to primarily relying on earnings realization.
Standard Chartered's model still indicates a low probability of a bear market, around 12% for the S&P 500 and around 18% for the MSCI World Index; however, if real yields continue to rise, or earnings expectations stop being revised upwards, the market's buffer will significantly decrease.
