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11.21.2025

TAKE A BREATH

We turn tactical NEUTRAL



We turn tactical NEUTRAL (previously LONG). We expect the current market volatility to continue as investors take some profits while assessing the balance of risks, especially around a potential US economy re-acceleration and rising inflation. That said, we remain buyers on dips, expecting the rally to continue after a healthy pause. Such a constructive view is supported by an improving macro-outlook, with CESI indices in positive territory across the main regions, strong corporate guidance, and CEO confidence picking up, but still not at frothy levels.
From a regional perspective, we reiterate our NEUTRAL stance on the main regions. Despite the high absolute valuations, US equities still look fairly priced given their level of profitability, both relative to other markets and to their own history.
From a sector standpoint, we maintain a cyclical Growth tilt, but we suggest reducing exposure to long-duration sectors like Media, which we have downgraded to NEUTRAL (previously LONG). Among traditional cyclical Value, we keep our long-dated LONG stance on Banks, expecting them to benefit from the resilient macro backdrop and the expected ongoing curve steepening. Pharma remains our favourite defensive sector.
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 high single-digit EPS growth. Already rich valuations will limit gains from multiple expansion, which was the main driver of last year’s rebound.
Through 2026, we anticipate continued growth in AI integration in business operations. However, we doubt that widespread AI adoption will sharply affect the labour market or company profitability in the short term. We expect any structural change to unfold over several years rather than as a sudden disruption. For example, even during the 1990s internet revolution, US Net Margin took five years to rise by 1 pp and reach its peak before the recession.
Regionally, we prefer the US and EM due to their predominance in the AI space and unique catalysts. Sector-wise, we favour Cyclicals over Defensives, leaning towards Growth-oriented stocks given our outlook for US GDP growth and inflation outlook. However, if the US economy grows more rapidly and inflation picks up, we would switch our focus to traditional Value stocks and take a more selective approach to long-duration sectors.


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COSIMO RECCHIA
Senior Equity Strategist

FRANCESCO PONZANO
Junior Equity Strategist




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