Favourable backdrop for US equity markets: solid consumer spending and corporate confidence in demand

In the United States, consumer spending remains solid, credit card data are stable and companies are showing confidence in the outlook for demand.
by Filippo Garbarino, manager of the Lemanik Global Equity Opportunities equity fund
The uncertainty linked to the peak in tariffs now seems to be behind us and the strength of corporate earnings, together with ongoing share buybacks, should continue to provide a supportive base for market performance in the months ahead. We therefore consider the current backdrop generally favourable for equity markets.
In November, equity markets were hurt by two main sources of uncertainty: the future return on investments in infrastructure linked to Artificial Intelligence and the direction of US monetary policy. Today, the macroeconomic backdrop points to a slowdown in the US economy: the corporate earnings recently reported by companies have been resilient, however the labour market is showing clear signs of stagnation, due to more limited migration flows, which are reducing the supply of labour, and to a series of hiring freezes by companies, aimed at protecting profit margins from tariff-related cost pressures. Although this represents a phase of deceleration, current conditions do not point to an imminent recession.
Moreover, consumer spending remains solid, credit card data continue to show stable activity and corporate management teams have not revised investments down, confirming business confidence in the outlook for demand. The Fed is in a phase of monetary easing and the pace of rate cuts could accelerate if conditions in the labour market were to weaken further. Two areas of structural weakness nevertheless persist: manufacturing, which remains in contraction territory, as shown by the Ism index, and the housing market, which continues to be held back by elevated mortgage rates and by obstacles linked to housing affordability.

In November, the Lemanik Global Equity Opportunities fund opened positions in Stryker and AJ Gallagher and sold its position in Waste Connections. Over the month, the Bloomberg Developed Markets index (in EUR) fell by 0.3%. The Fund outperformed its benchmark, posting a gain of 0.5%. The main outperformers were HCA, Hilton and Alphabet, while the main underperformers were Microsoft, Nvidia and Amazon. The Fund's portfolio is currently trading in line with the market on valuation, based on Free Cash Flow Yield (that is, the measure of companies' ability to generate cash for value creation, such as dividends, share buybacks or debt reduction, helping investors identify undervalued stocks with high returns, ed.). However, the companies in the portfolio are stronger than the market from a bottom-up fundamental perspective.
The companies in the portfolio are growing their revenues and EBITDA faster than the market and have better profitability metrics (margins, ROIC and ROE). In addition, the companies in the portfolio have lower leverage and higher earnings quality compared with market averages. The greater strength of the companies held in the portfolio should ensure that they outperform the benchmark across a range of market scenarios. At sector level, the portfolio has no exposure to banks, technology hardware, non-discretionary consumer goods, pharmaceuticals, real estate, energy and utilities. The portfolio is overweight financials, industrials, chemicals and discretionary consumer goods. Technology, by contrast, is underweight.