Reiterate tactically long position. The expectations are global equities to keep grinding higher driven by another better-than-expected repoting season.
We reiterate our tactically LONG position. We expect global equities to keep grinding higher over the next few weeks driven by another better-than-expected reporting season and a healthy macro environment across the board.
However, we expect increased market volatility driven by headline noise rather than any real deterioration in hard data. As the US mid-term election approach, President Trump is adopting a more outspoken approach resembling his behaviour earlier in his mandate. So far, he has targeted credit-card issuers and real-estate investment funds, aiming to make life more affordable for US consumers. However, what benefits consumers does not necessarily benefit stock prices, at least from a trading perspective. That said, we will continue to buy on dips, anticipating that the rally will persist, albeit with more volatility.
The main risks to our constructive outlook stem from any dramatic shift in expectations about the Fed's next moves or a significant reduction in liquidity. We view any rise in geopolitical tensions as a potential buying opportunity, provided that China is not directly involved. Escalations in Latin America or the Middle East are seen as marginally supportive.
From a regional perspective, we reiterate our NEUTRAL stance on the main regions. We see all regions participating in sync with the expected extension of the rally.
From a sector standpoint, we maintain a cyclical tilt, raising the exposure to traditional cyclical Value sectors (previously agnostic). That said, we upgrade Capital Goods to LONG (previously SHORT) re-engaging with Aerospace and Defence. Within Growth, we downgrade both Software and Tech to NEUTRAL (previously LONG), as we anticipate their sluggish performance will persist even though their fundamentals are strong. We believe the market will reward these sectors positively, along with Media (NEUTRAL), once there are clear signs of AI monetisation. Pharma continues to be our top pick among defensive stocks.
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 mostly by earnings growth. Our new GDP forecasts for US suggest Global EPS will rise by around 12% in 2026 (previously high single digits). Already rich valuations will limit gains from multiple expansion, which impact is progressively decreasing since 2023.
Regionally, we still favour the US and EM for their leading roles in AI and unique catalysts, although performance may become more aligned across regions over the next 12 months. Sector-wise, we favour Cyclicals over Defensives, neutralising our previous Growth tilt.
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