Our market has bounced back from a weak open with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index closing 0.4% higher today.
Some experts believe risk assets are heading higher and worries about a market correction due to stretched valuations are overblown.
In fact, we may not have to wait long for the next catalyst that will send equities higher as Macquarie Group Ltd (ASX: MQG) is predicting an upturn in the US, which will trigger a jump in bond yields.
Ready for a rebound
The broker thinks we will see a trough in the US cycle in the next month or two and it sees "material upside risk to bond yields".
Yield and price move in opposite directions and the upturn in the US economy will prompt investors to sell defensive assets like government bonds and buy risker growth assets, such as stocks.
"Upturn in US cycle looks imminent. The latest OECD leading indicators confirm a trough in the global economy (OECD+6) and also the Euro Area," said Macquarie.
"The US has yet to trough, but a slower month-on-month decline indicates to us that a US trough will occur in the next month or two."
Conditions in Australia may also soon improve as the broker thinks the housing slump may be close to bottoming, and that means Australian bond yields could also be heading higher.
Go overweight on growth stocks
The prediction on yields has led Macquarie to recommend increasing exposure to ASX 200 growth stocks, particularly those with material exposure to the US economy.
The broker's top picks in this category include the Aristocrat Leisure Limited (ASX: ALL) share price, Reliance Worldwide Corporation Ltd (ASX: RWC) share price, James Hardie Industries plc (ASX: JHX) share price and Amcor Limited (ASX: AMC) share price.
I too am overweight on stocks with large US exposure as I think the world's biggest economy is in a better position to grow than Australia.
But it's not only the US that is a bight spot. Macquarie also thinks the Chinese economy is improving and it's recommending investors boost their exposure to the Chinese consumer.
One way to do that is through casino group Star Entertainment Group Ltd (ASX: SGR) with Macquarie adding the stock to its model portfolio and dropping lottery and wagering company Tabcorp Holdings Limited (ASX: TAH).
"We think recent M&A [merger and acquisition] events with CWN/Wynn [Crown Resorts Ltd (ASX: CWN) and Wynn Resorts, Limited] could draw attention to Australian casinos, and note SGR is nearly 2 turns of EBITDA cheaper than CWN," said Macquarie.
