Solid corporate earnings, upcoming interest rate cuts and improved economic data are driving share prices higher. The high valuation of US equities is supported by high margins and strong growth. We are focusing on opportunities in equities, emerging markets and gold.
Equity valuations have risen sharply once again. In the US, the forward price-earnings ratio (P/E ratio) is back above 22, more than two standard deviations above its long-term average. This means that many equity indices are not attractively valued. However, as long as corporate earnings continue to grow solidly, this should not be a stumbling block for the time being. The second-quarter earnings season is already underway and, despite a few outliers, the majority of companies have surprised on the upside so far. Banks and tech stocks have once again performed particularly well. We expect analysts' initially rather moderate expectations (4% earnings growth in the US and 0% in Europe) to be significantly exceeded in the end (see chart). This is positive for the equity markets and could compensate for the otherwise rather poor seasonality in August.
Our sentiment and positioning indicators usually warn of caution after a strong rally. However, several of our indicators are currently in neutral territory and we have only received isolated sell signals. One warning sign, for example, is the massive underperformance of defensive sectors relative to cyclical sectors. Taken as a whole, however, there is no sign of excessive euphoria. The economy has so far proven to be much more robust than we and other experts had expected. In fact, the data is increasingly positive. On the other hand, the effect of trade tariffs on inflation has been modest so far, as the much more significant service inflation is declining. Although we expect inflation rates to rise slightly over the next few months, the US Federal Reserve is likely to cut interest rates for the first time in September. This could provide further impetus for the stock markets. We are therefore starting August with a slight overweight in equities.
We have held an overweight position in emerging markets for some time now, both in equities and bonds. This positioning is now paying off, as these assets are benefiting from the weak US dollar, a solid economy, comparatively low inflation rates (e.g. 3.6% in Mexico and 2.25% in South Korea) and further interest rate cuts. Despite a slight stabilisation in July, we expect the US dollar to continue to weaken, as the US government is pushing ahead with its efforts to weaken the Fed's independence. We prefer the Swiss franc and the British pound. Gold, in which we are overweight, should also continue to benefit from this development. We remain underweight in very expensive corporate bonds.
Looking back on the stock market year 2025, we see unexpected twists and turns, turbulent phases and dynamic markets. But how did our investment theses fare in this challenging environment? Our multi-asset experts wanted to find out more and took a closer look at the three main theses. Here are their conclusions.
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