20210615-未知机构-Equity_Compass_Overvalued_Value_40页_923kb

Equity Compass Overvalued Value Summary

Core Content

This document provides an analysis of U.S. equity market dynamics in 2021, focusing on the valuation and performance of different sectors and factors, particularly the Value vs. Growth factor, the impact of the pandemic recovery, and inflation expectations.

Main Points

Market Leadership and Value Outperformance

• The market is no longer pricing out-of-control inflation, which was a key tail risk for equities.
• The Value vs. Growth outperformance, previously driven by the pandemic's impact on sectors, is expected to pause as the short-term (ST) negative exposure stocks have largely reverted to their pre-pandemic performance levels.
• The SPX P/E ratio's overvaluation is primarily due to the overvaluation of ST negative names, while other sectors like FANMAG are close to their 2019 levels.

Inflation and Real Rates

• Realized inflation has been strong, but inflation expectations (measured by the 10Yr breakeven) have fallen sharply.
• The market now views current inflation as transitory, with Barclays economists projecting CPI YoY to fall to ~2% by mid-2022.
• The SPX is trading near all-time highs, indicating that equities do not expect further declines in inflation expectations.
• The Real Rate proxy basket suggests that equities are pricing in the potential for real rates to rise, implying a possible increase in nominal yields.

EPS Surprises and Consensus Expectations

• Consensus EPS expectations are not fully incorporating the rebasing effect of past surprises.
• The SPX is expected to have a FY2021 EPS of $217 according to the Surprise Catch-Up (SC) model, which is more optimistic than the consensus or top-down model.
• The SC model highlights that the market is not adequately accounting for the strength of recent EPS surprises, which could lead to further upside.

Sector Valuation and Performance

• Cyclical sectors like Consumer Discretionary ex. FANMAG and Industrials are trading at high valuations.
• Defensive sectors like Utilities & Real Estate and Communication Services ex. FANMAG are also overvalued.
• Energy & Materials and Financials are seen as relatively undervalued compared to other sectors.
• The document emphasizes that valuations across the market are elevated compared to historical levels.

Thematic Baskets

• Barclays has developed thematic equity baskets that are available on Bloomberg, each with different weighting schemes and rebalancing frequencies.
• These baskets include portfolios based on corporate tax hikes, recession phases, expansion phases, trade wars, clean energy, domestic vs. international sales, and COVID exposure categories.

Key Information

Value vs. Growth Factor

• The Value factor has outperformed the Growth factor recently, but this is largely due to the pandemic's impact on sectors.
• The outperformance is unlikely to continue as the short-term negative exposure stocks have largely caught up with the market, and the pandemic's influence is waning.

Inflation and Real Rates

• Inflation expectations are falling, even though realized inflation is high.
• The SPX is not pricing in further declines in inflation breakevens, suggesting that equities are not overly concerned about sustained inflation.
• Real rates may rise due to the potential increase in nominal yields, which could be positive for equities.

EPS Surprises

• Consensus is not incorporating past EPS surprises into future expectations, leading to overly pessimistic forecasts.
• The Surprise Catch-Up model suggests that actual EPS could be significantly higher than consensus estimates, highlighting the potential for further surprises.

Sector Analysis

• Cyclical sectors (Consumer Discretionary ex. FANMAG, Industrials, Hardware & Semiconductors ex. FANMAG) are overvalued.
• Defensive sectors (Utilities & Real Estate, Communication Services ex. FANMAG) are also overvalued.
• Energy & Materials and Financials are relatively undervalued.
• Software & Services ex. FANMAG and FANMAG as a whole are overvalued due to the digital transformation driven by the pandemic.

Thematic Baskets

• Thematic baskets are available on Bloomberg, each with a specific focus and rebalancing schedule.
• These baskets allow investors to track different market themes and exposures.

Conclusion

The U.S. equity market is currently overvalued, with the Value vs. Growth outperformance likely to end as the pandemic's impact diminishes. Inflation expectations are falling, and the market is pricing in a potential rise in real rates. EPS surprises are likely to continue, suggesting that the market may be underestimating future earnings. Sector valuations remain high, with cyclical and defensive sectors overvalued, while Energy & Materials and Financials are seen as relatively undervalued. Thematic baskets offer a way to track different market exposures and themes.