Global Equity Investor insight | November 2024

Nov 05, 2024

A broadening out of performance across the market.

Reflecting on the past month, Jeremy Richardson explores;

  1. Shifts in the market context, encouraging more outperforming stocks.
  2. Goldilocks conditions as margin and revenue growths balance out.
  3. Developments in the world of AI.

Jeremy Richardson

Hello, this is Jeremy Richardson from the RBC Global Equity Team here with another update.

I wanted to bring you up to speed with what we've been seeing in global equity markets, and a shift in the market context. You may remember in the second quarter that global equity performance was being very much driven by a small number of large companies, meaning that a lot of small mid-sized companies were being left behind.

Well, over the third quarter, and it seems so far into the fourth quarter as well. We've been seeing a broadening out of performance across the market, spurred perhaps by its, good economic conditions; small mid-cap stocks are now beginning to participate, and this is a good thing for investors because if as a stock picker, you're trying to fill a portfolio with stocks that outperform is generally more helpful if more stocks are outperforming.

So this is a encouraging development, I think, in terms of the broadening of the market context. The reason for the change, I think, is because the market has become yet more comfortable now that interest rates are beginning to fall, particularly in the United States, that economic conditions are going to continue to sort of remain broadly supportive. If we have a set of, almost Goldilocks, kind of conditions at the moment, for investors, that is, very helpful because there has been this concern if we go back in our minds to the earnings seasons of Q1 and Q2, that the positive results that we were seeing back then were driven more by margins rather than by revenues. And of course, you can't have margin growth forever unless you also have some revenue growth.

So, if we are now facing a situation where there is no landing, the economic, you know, the economy can continue to evolve in a supportive direction, then maybe it means the outlook for both revenues and margins is going to be improving, and that's going to benefit mostly those companies that at so far have been left behind. So that's I think an encouraging development. But, we mustn't lose sight of some of the things that are going on within some of those large companies because life isn't standing still.

Just, over the last few weeks, you've had some really interesting developments in the world of AI, for example, where new large language models are uncovering new ways of solving problems. As individuals, if we receive a problem that we need to try and solve. The natural instinct is for us to try to work out the best method for solving the problem before we then execute on that method. Up until now, large language models have actually just been applying brute force in order to solve problems. But by adopting these more humanistic reasoning methods, to try and identify the most productive method first and then pursuing that method, we're getting much more, rich results coming from the very latest large language models.

The reason why this is important is because up until now, there has been some doubt about the level of investment and the sustainability of that investment into artificial intelligence and the level of capital expenditure, and what that would mean for the demand for semiconductor chips and all the other bits of hardware that support that. If now the efficient frontier of artificial intelligence large language models is moving further forward, then that should mean that more investment will be coming and that should sustain revenues for a large part of the market, particularly respect to the semiconductor companies and other hardware manufacturers.

I hope that's been of interest, and I look forward to catching up with you again soon.

Sign up for insights by email

Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.

This document is a marketing communication and it may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, Italy, Spain and Netherlands the BBFM S.A is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In the United Kingdom (UK) by RBC Global Asset Management (UK) Limited (RBC GAM UK), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In Switzerland, by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The place of performance is at the registered office of the Representative. The courts at the registered office of the Swiss representative or at the registered office or place of residence of the investor shall have jurisdiction pertaining to claims in connection with the offering and/or advertising of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), the Packaged Retail and Insurance-based Investment Products - Key Information Documents (PRIIPs KID), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. In Australia, RBC GAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. RBC GAM UK is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permits RBC GAM UK to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client”, as such term is defined under applicable securities legislation. In the United States, by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. The entities noted above are collectively referred to as “RBC BlueBay” within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of RBC BlueBay by the respective licensing or registering authorities. Not all products, services or investments described herein are available in all jurisdictions and some are available on a limited basis only, due to local regulatory and legal requirements.

This document is intended only for “Professional Clients” and “Eligible Counterparties” (as defined by the Markets in Financial Instruments Directive (“MiFID”) or the FCA); or in Switzerland for “Qualified Investors”, as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by “Accredited Investors” (as defined in the Securities Act of 1933) or “Qualified Purchasers” (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer.

Unless otherwise stated, all data has been sourced by RBC BlueBay. To the best of RBC BlueBay’s knowledge and belief this document is true and accurate at the date hereof. RBC BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute our judgment and are subject to change without notice. RBC BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only.

No part of this document may be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose in any manner without the prior written permission of RBC BlueBay. Copyright 2023 © RBC BlueBay. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management Inc., RBC Global Asset Management (UK) Limited and RBC Global Asset Management (Asia) Limited, which are separate, but affiliated corporate entities. ® / Registered trademark(s) of Royal Bank of Canada and BlueBay Asset Management (Services) Ltd. Used under licence. BlueBay Funds Management Company S.A., registered office 4, Boulevard Royal L-2449 Luxembourg, company registered in Luxembourg number B88445. RBC Global Asset Management (UK) Limited, registered office 100 Bishopsgate, London EC2N 4AA, registered in England and Wales number 03647343. All rights reserved.

Sign up for insights by email

Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.