Yves Bonzon

The key question will be whether large-cap US technology companies will be able to extend their market leadership, enabling the US equity bull market to continue. 

In recent years, the major US technology companies have created unprecedented shareholder value thanks to their ability to generate free cashflow despite their strong growth. They have been fundamentally undervalued for more than 10 years. However, this is no longer the case. Today, their free cashflow yield is slightly below that of the S&P 500 and they are priced for consistently superior free cashflow margins. As such, investors like us, who have a fundamental growth DNA, are in a difficult position right now. 

China does not allow its digital behemoths to build a dominant competitive position, Europe is facing structural and ideological issues and the leading US technology companies are no longer structurally undervalued. 

We believe it is too early to underweight the major US technology stocks, especially given their profitability and the strength of their franchises. Historically, the transition from an information technology cycle to a commodities cycle, and therefore from a secular bull cycle to a secular bear cycle, is characterised by a US recession (1974, 1983, 2001 and 2008). We still do not expect a recession in the US. We see the continued leadership of the large-cap US tech companies to be the most likely scenario, while acknowledging their contribution to the outperformance of the US market is likely to be more challenging in the future.