Investing.com– Rising bond yields and stretched equity valuations are creating headwinds for global stocks, according to BCA Research’s latest MacroQuant report.
Analysts at BCA highlight that while economic growth indicators have improved, persistent inflation and tightening monetary conditions weigh on market sentiment.
The MacroQuant model moved to a neutral stance on U.S. equities, forecasting below-average returns for the S&P 500 over the next one to three months, analysts said. Among sectors, the model prefers defensive options like healthcare and utilities, citing stable earnings prospects and margin improvement potential.
Financials also received a moderate endorsement, but deep cyclical sectors and tech are recommended holds or avoids, BCA Research said.
Regionally, the U.S. remains the standout performer, buoyed by robust corporate earnings and stock buybacks. However, analysts caution against lofty valuations, with the S&P 500 trading 60% above fair value estimates—levels not seen since the dotcom era.
In fixed income, BCA’s model remains neutral on bond duration in the short term but suggests investors may benefit from increasing duration later in 2025 as long-term Treasury yields are viewed as attractive. The model prefers government bonds from the UK, Eurozone, and New Zealand within currency-hedged portfolios.
The U.S. dollar is expected to continue strengthening in the near term, driven by economic resilience and its momentum currency status, though analysts note that valuation metrics signal potential overextension.
In commodities, BCA favors oil over copper, reflecting sluggish demand for base metals in China. Gold has been downgraded to neutral, as dollar strength offsets central bank purchases, analysts said.
BCA’s overall outlook tilts cautiously bearish on equities, urging selectivity across sectors and regions while highlighting relative opportunities in bonds and commodities.
