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10.23.2025

KEEP RIDING

We remain tactically LONG

We remain tactically LONG. We expect the market to continue grinding higher as the Q3 reporting season unfolds, with positive earnings surprises likely to drive major equity indices towards new all-time highs. Additional tailwinds include favourable seasonality, dollar weakness, investor sentiment that remains measured, rather than euphoric, despite the rally so far. While compressed volatility and rich valuations may trigger temporary market weakness, we would remain buyers on dips in such scenarios.

From a regional perspective, we now neutralise previous preferences, anticipating that the rally will broaden across markets. We downgrade the US and Japan to NEUTRAL (previously LONG) and upgrade the UK to NEUTRAL (previously SHORT).

From a sector standpoint, we continue to favour cyclical AI-related sectors. Among traditional cyclical Value, we maintain our long-standing LONG stance on Banks, expecting them to benefit from a resilient macro backdrop and the anticipated ongoing curve steepening. Pharma remains our preferred defensive sector. On style, we note that Value has now become the Quality segment of the market, whereas this tilt was previously associated with Growth.

Strategically, we reiterate our OVERWEIGHT stance on equities and view any market weakness as a buying opportunity. We expect the global benchmark to reach new highs in Q4 and to accelerate further in 2026, driven primarily by high single-digit EPS growth. While already rich valuations may limit gains from multiple expansion, which was the main driver of last year’s rebound.

Regionally, we favour the US and EM, given their leadership in AI and idiosyncratic catalysts such as monetary and fiscal easing in the US, an expected weaker USD, and light investor positioning in EM. Sector-wise, we favour Cyclicals over Defensives, with a bias towards growth-oriented names.

COSIMO RECCHIA
Senior Equity Strategist

FRANCESCO PONZANO
Junior Equity Strategist

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