Since the start of 2022, equity investors have been worried about tightening monetary policies and there has been a marked downward correction in equity markets. But economists at Natixis believe investors should remain bullish about equities for several reasons.
Central banks’ moderate reaction to inflation
“Given the multiplication of their objectives, central banks cannot react strongly to inflation. The market’s scenario of real long-term interest rates remaining persistently negative is therefore reasonable, which is obviously positive by driving up equity valuations and making a rotation from equities into bonds unconscionable for investors.”
Income distribution still favours earnings
“Despite faster wage growth, income distribution is still skewed in favour of earnings. The consensus scenario of earnings per share growth remaining relatively rapid is therefore also reasonable.”
Cash holdings are still large
“Cash holdings are still abnormally large, so the portfolio rotation from cash to equities is not over.”
