Catenaa, Tuesday, September 29, 2026- US equity valuations have softened this year as strong earnings growth has outpaced market gains, Standard Chartered said.
In its Outlook for Global Markets in Q4, Standard Chartered said the 12-month forward P/E of around 20x remains at a premium to other markets but is justified by high returns on equity, differences in sector composition, and a superior growth outlook.
“In the run-up to US mid-term elections in November, we would not be surprised to see higher volatility, though we would use any undue corrections as opportunities to add exposure,” it said.
Standard Chartered said that they upgraded US Materials to Overweight as robust capex drives demand for industrial metals and construction materials, while remaining bullish on gold.
US Technology and Communication Services remain the primary growth engines, supported by structural AI tailwinds, the report said.
“We remain Overweight in Financials across the US, Europe ex-UK, and Japan, underpinned by earnings stability and elevated rates supporting interest income. This is further supported by a US capital markets recovery and European balance-sheet strength,” Standard Chartered said.
Moreover, the report said there is understandably some concern about whether rising central bank policy rates, and rising bond yields across maturities, will challenge equity markets.
However, they said rate hikes in the 1990s are a better historical parallel, when central banks hiked rates into strong economic and earnings growth, and equity markets maintained their pace of gains.
The 2022 hiking cycle, in contrast, represented an inflation surprise, which Standard Chartered believes is not the case today.
Still-strong economic and earnings growth keeps the outlook on for equities and other risky assets constructive into year-end and beyond.
The pause over the last couple of months was likely driven by a combination or rising bond yields, September seasonality, and excessive investor optimism around mid-year.
However, earnings expectations for global equities remain very strong (especially in preferred US and Asia ex-Japan regional markets).
“We believe these earnings remain sufficiently robust to outweigh the drag from higher bond yields. Therefore, we remain Overweight equities relative to bonds and cash, though we believe it is prudent to ensure the size of the equities Overweight is not excessive,” Standard Chartered said.
