09.24.2026
Staying LONG keeping it REAL
We maintain our tactical LONG position on global equities, supported by resilient earnings, sustained AI investment, and positive macro surprises. The LONG stance nevertheless remains moderate.
We maintain our tactical LONG position on global equities. Recent US company results continue to confirm resilient profitability and sustained AI investment, while macroeconomic data in both the US and Europe have generally surprised positively. Supportive earnings revisions and broader market participation keep the fundamental backdrop constructive, although stronger economic news can weigh on prices when it pushes bond yields higher.
The LONG stance nevertheless remains moderate. Geopolitical risks, high oil prices and a more hawkish monetary-policy outlook constrain the upside, alongside softer consumer momentum and elevated long-term yields. Stronger expected earnings growth helps support valuations, particularly in Technology and Semiconductors, where our stress tests also indicate room for some earnings disappointment.
A further rise in nominal yields driven by higher real yields could trigger a valuation correction. We would regard this as a manageable risk within our constructive medium-term view, provided credit spreads remain broadly stable and earnings expectations hold. Our sensitivity analysis illustrates a potential S&P 500 decline of around 8% if the US 10-year yield reached 6% entirely through higher real yields, with breakeven inflation, HY spreads and forward EPS unchanged. This is a conditional stress scenario rather than our baseline. Conversely, stabilising or declining real yields would provide valuation support.
Our regional preferences are unchanged from last month. We remain LONG the US, which offers the strongest earnings visibility and the greatest exposure to AI-related investment. Continental Europe and the UK remain NEUTRAL, as resilient activity is offset by higher energy costs and tighter monetary policy. We maintain a NEUTRAL stance on Emerging Markets, with a positive bias and a preference for Korea and Taiwan, while Japan remains SHORT given faster BoJ normalisation, higher domestic yields and potential yen appreciation.
Our sector positioning is also unchanged. We retain a mild cyclical tilt while remaining agnostic on style.
Strategically, we maintain our rolling 12-month OVERWEIGHT stance on equities, although the hurdle rate has increased. With the 10-year Treasury yield close to 5%, equities face greater competition from bonds, and future returns must increasingly depend on earnings growth rather than multiple expansion. With US real GDP expected to grow by around 2.1% in 2027, we continue to forecast S&P 500 EPS growth of approximately 13%, slightly below consensus.
We expect a volatile, but still positive, return profile. Our constructive view allows for meaningful valuation corrections. A simultaneous widening in credit spreads and deterioration in earnings expectations, or material reductions in AI-capex plans, would require reassessment. In their absence, we would continue to add gradually on weakness.
Cosimo Recchia
Senior Equity Strategist
Francesco Ponzano
Junior Equity Strategist
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