Capital Group Sees Window For Stock Buying On Fed Rate Signal

Pedestrians near the New York Stock Exchange (NYSE) in New York, US, on Monday, Aug. 28, 2023. Stocks advanced, while bond yields retreated at the start of a week jam-packed with economic reports that will help shape the outlook for Federal Reserve policy.

(Bloomberg) -- Capital Group is seeing an opportunity for investors to load up on global equities after the Federal Reserve held rates on Wednesday, signaling an end to its aggressive tightening cycle.

“The really big message for investors is that this moment of central banks peaking is likely to be the opening of a window where it's going to be a really good time to get invested,” Andy Budden, investment director for equities at the $2.3 trillion manager said at a briefing in Singapore.

Stocks and bonds extended gains in a relief rally Thursday on hopes the Fed is nearing the end of its historic tightening campaign. Worries over higher borrowing costs have sparked a global rout this year, with emerging markets seeing a selloff in risk assets amid a stronger dollar.

Capital Group is now advising clients to “have the courage to act,” portfolio manager Winnie Kwan said at the same briefing. “The divergence between the asset classes, between cash, fixed income and equities is the most prominent” after rates peak, she said.

Global equities return more than 12% on average in dollar terms over the 12 months that follow the final Fed hike in a cycle, based on Capital Group's analysis of the past four rounds. In contrast, global bonds yield about 6%, while cash returns about 4%.

A record $5.6 trillion cash is on the sidelines waiting to be deployed, Kwan said. Faster-growing dividend-paying companies have been “punished unduly” this year, she added, citing the cohort as a potential investment bet.

Capital Group's views contrast with Morgan Stanley's Michael Wilson, who recently warned against investing in US equities amid narrow market breadth and fading consumer and business confidence. JPMorgan Chase & Co. strategist Marko Kolanovic said US earnings estimates are divorced from risks posed by tightening financial conditions.

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