We upgrade our tactical stance to LONG (from NEUTRAL), supported by resilient Q2 results.
We upgrade our tactical stance to LONG (from NEUTRAL). Global equities have broken above their previous range, while resilient Q2 results have improved the nearterm risk-reward. Our LONG stance remains moderate, given elevated valuations and a demanding earnings backdrop.
September seasonality remains a risk, but not a sufficiently strong reason to stay NEUTRAL. The month has historically delivered weaker returns and higher volatility, but seasonal patterns have become less reliable. We see this as a season to avoid chasing the market rather than as a standalone negative signal.
Regionally, we upgrade the US to LONG (from NEUTRAL) and move Europe to NEUTRAL (from LONG). The US offers the strongest earnings visibility, while lower Fedhike expectations and greater energy independence provide additional support. European earnings remain solid, but Energy accounts for around 28% of expected 2026 EPS growth, while higher oil prices represent a headwind for the broader economy. We remain NEUTRAL on EM. We maintain our SHORT stance on Japan, given the risks from BoJ tightening, higher yields, and potential yen appreciation.
From a sector perspective, we move from NEUTRAL to a mild cyclical tilt while remaining style-agnostic. We upgrade Capital Goods to LONG (from NEUTRAL), supported by improving manufacturing activity and sustained investment in power generation, defence, and industrial capacity. We also upgrade Energy to LONG (from NEUTRAL) as a hedge against renewed geopolitical and oil-price risks. We cut Consumer Durables & Apparel to SHORT (from LONG) as US and Chinese consumer data soften. We upgrade Utilities to LONG (from SHORT) following recent underperformance and supported by structural electricity demand from data centres.
Within Growth, we upgrade Semiconductors and Technology Hardware & Equipment ex-Apple to LONG, both previously NEUTRAL. AI investment remains strong and is broadening beyond GPUs, benefiting memory, optical networking, servers, and cooling infrastructure. Software remains NEUTRAL with a negative bias, and we downgrade Media & Entertainment to NEUTRAL (from LONG).
The near-term outlook remains far from one-sided. Further consumer weakness, higher oil prices, or a renewed increase in Fed-hike expectations could generate volatility. We would reassess the tactical LONG stance if earnings revisions or market breadth deteriorated materially.
Strategically, we maintain our rolling 12-month OVERWEIGHT stance on equities. Resilient growth, strong corporate profitability, and continued AI investment support the medium-term outlook. With US real GDP expected to grow by around 2.1% in 2027, we forecast S&P 500 EPS growth of approximately 13% next year, slightly below current consensus. This reflects solid revenue growth, modest margin expansion, share buybacks, and an AI-driven earnings contribution beyond that implied by traditional macroeconomic relationships.
We expect returns to become increasingly earnings-driven, while broader participation should create opportunities beyond mega-cap Technology. We would continue to view meaningful market weakness as a buying opportunity.
Cosimo Recchia
Senior Equity Strategist
Francesco Ponzano
Junior Equity Strategist
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