We turn NEUTRAL (previously LONG). We expect global equities to keep moving sideways over the next few weeks within a narrow trading range. The floor is underpinned by robust macroeconomic conditions, subdued inflationary pressures/expectations of monetary easing, and continued fiscal support across regions. The ceiling is set by valuations in a context of diminishing near-term catalysts, which are likely to continue to drive rotations and associated performance dispersion.
That said, we tactically continue to buy on dips, anticipating that the upward trend will persist, albeit with higher volatility.
The main risks to our constructive outlook stem from any dramatic shift in expectations about the Fed's stance and/or a significant reduction in liquidity. We view any rise in geopolitical tensions as a potential buying opportunity, provided China is not directly involved. Escalations in Latin America or the Middle East are seen as marginally supportive.
From a regional perspective, we turn more selective (previously NEUTRAL on the major regions). We cut the US to SHORT, expecting the current underperformance to continue, while we promote the Rest of the Developed World - Japan, Continental Europe and the UK - to LONG. We remain NEUTRAL on EM.
From a sector standpoint, we maintain a cyclical tilt with a bias towards traditional cyclical Value names. Within the main sectors, we still like Banks, Diversified Financials, and Materials; while we cut Capital Goods to NEUTRAL (previously LONG) favouring Transportation, which is now promoted to LONG (previously SHORT), due to its strong EPS momentum. Within the AI theme, we continue to prefer Semis over Software. We tactically downgrade Media & Entertainment and Retailing to SHORT (previously NEUTRAL). Within Defensives, Telecoms and Food, Beverages, and Tobacco are now the top picks (previously NEUTRAL and SHORT, respectively), while we downgrade Pharma to NEUTRAL (from LONG) due to its weak r earnings momentum.
Strategically, we reiterate our OVERWEIGHT stance on equities and view any market weakness as a buying opportunity. We expect the global benchmark to accelerate in 2026, driven primarily by earnings growth. Our GDP forecasts for the US suggest global EPS will rise by around 12% in 2026. Already rich valuations will limit gains from multiple expansion, whose impact has been progressively decreasing since 2023.
Regionally, we expect equities’ performance to become more aligned across regions over the next 12 months. That said, we neutralise our previous US and EM tilt in favour of a more agnostic approach. We believe this is the most effective approach for navigating a year marked by synchronized global economic growth and latent geopolitical risks, including the US midterm elections elections. Sector-wise, we favour Cyclicals over Defensive, remaining neutral on style.
Cosimo Recchia
Senior Equity Strategist
Investment Research
Francesco Ponzano
Junior Equity Strategist
Investment Research
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