Standard Chartered has extended its defensive stance on equities following a hotter-than-expected US inflation report that triggered the Nasdaq-100's biggest weekly decline in three months. The firm downgraded US Communication Services equities to Neutral while upgrading Healthcare to Overweight, citing better earnings visibility and defensive characteristics in the sector.
The September US inflation data showed headline CPI rising 3.7% year-over-year and core CPI at 2.6%, reviving speculation about an October Fed rate hike. However, the firm expects the Fed to hold this month and favor a December hike if inflation remains firm. Equities have pulled back but not yet reached capitulation levels, with the Nasdaq 100 down 4.5% from its record high and the VIX volatility index at 18.2.
In fixed income, Standard Chartered sees opportunities in the US 10-year government bond, expecting yields to range between 5.00% and 5.25%. The firm remains cautious on equities until there are clearer signs of AI profit margins, spending guidance, broader earnings growth, or lower market volatility. US financials remain a preferred sector post-Q3 earnings, with healthy loan and deposit growth supporting net interest income.
The firm's weekly macro balance sheet assesses the past week's data and policy as negative for risk assets in the near term, citing higher-than-expected US inflation and weak consumer sentiment. China's consumer price inflation missed estimates, while producer prices rose at the fastest pace since June 2022 due to fuel costs.