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Our asset allocation preferences are based on 5 indicators, including 4 macro and fundamental indicators (leading) and 1 market dynamics (coincident). The weight of the evidence suggests a constructive view on equities (positive). Below we review the main drivers for each of them.
Pillar 1: Macro cycle
(POSITIVE)
A look at global growth data confirms a continuation of the economic recovery. This development is not only driven by the service sector, but also by improvements in the global manufacturing sector. With leading indicators like purchasing manager indices (PMIs) pointing to a continued modest pace in growth, we expect global economic activity also to recovery further because of further diminishing trade uncertainties. Although the US Supreme Court has yet to rule on the legal foundation of the current tariff framework, early assessments suggest the justices are unlikely to uphold the rationale underpinning the Trump-era measures. Even so, a potential rejection of the existing legal basis would not necessarily signal the end of US import tariffs. There appear to be sufficient alternative statutory avenues for maintaining the duties, suggesting only limited near-term changes in trade policy. While an adverse decision could briefly heighten market volatility and revive trade uncertainty, a definitive legal clarification is likely to provide greater transparency and reduce uncertainty over the medium to longer term—an outcome markets typically favour. Yet, even under the current legal tariff regimes, attention will turn to how President Trump and his administration approach several key upcoming cases involving potential new tariffs, particularly in strategically sensitive sectors such as semiconductors. For now, the positive takeaway is that the trade environment has remained relatively stable. There has been no renewed “tit-for-tat” escalation in the US–China trade dispute, a point reinforced by the recent decision to extend the existing trade truce between Washington and Beijing well into next year.
Chart 1: Global service sector business activity’s leading indicator stays strong, and the manufacturing sector did improve lately to positive levels too
In the United States, economic data is scarce due to the government shutdown, but private economic data painted a solid growth picture recently. While the service sector indicators surprised to the upside last month, leading manufacturing data continued to point to sluggish has dampened fiscal spending and appears to be a key factor behind softer US private consumption. Beyond delaying payments to federal employees, the shutdown likely reduced employment growth both within the public sector and among government suppliers, contributing instead to an uptick in job cuts. Still, the latest job market data depicts a rather balanced picture—one of a weakening but fundamentally solid labour market—with most measures of labor market stress trending lower. Assuming the shutdown is lifted in November, as currently expected, fiscal spending should quickly resume, providing support for private consumption. Any temporary weakness in demand is therefore likely to reverse swiftly once normal government operations are restored.
Chart 2: San Francisco Fed’s weekly labour market stress indicator grinding lower to no-stress territory
We do not expect the current political stalemate to derail the solid growth path of the economy; however, several other downside risks prevail for the US economy: delayed tariff impacts on prices and demand, further electricity price increases and the growing debt burden for households and government under the weight of elevated interest rates.
In the Eurozone, a modest upward surprise in the Eurostat’s preliminary estimate for third-quarter GDP offered a welcome sign that the region’s economy may be on the path to gradual recovery. Although overall activity remains subdued, recent data suggest a tentative improvement, with leading PMI indicators trending higher across most member states. France remains an exception, where business sentiment continues to be weighed down by ongoing political uncertainty and domestic instability.
Chart 3: Eurozone receives positive economic activity signals from its PMI surveys – particularly the periphery is on a strong upward trend while France falls behind
Despite all the positive sings, the Eurozone will still have to overcome US tariffs, the euro strength, and elevated energy prices that slow the economic recovery down. The ongoing war in Ukraine, political turmoil in France, and the weakening of Germany’s governing coalition remain the key domestic risks to the Eurozone’s nascent recovery. Nonetheless, in our base case, fiscal stimulus should help to spur growth towards the end of this year and into 2026.
Although Swiss exports to the US remain subject to a massive tariff burden, the Swiss economy proves to be quite resilient and shows robust grow signals, such as the weekly economic activity indicator (SECO WEA). It remains key for the Swiss export sector growth and the overall economic activity that Swiss pharma exports do not fall under the 39% US tariffs imposed on other exports. However, if the 39% on certain Swiss exports to the US persist—the higher relative tariff burden—especially compared with key U.S. trading partners such as the EU, where rates stand at only around 15%—will become increasingly significant, particularly given the strength of the Swiss franc. Over time, this combination is likely to weigh on the competitiveness of Switzerland’s export sector. Nonetheless, we continue to expect the United States and Switzerland to reach a new trade agreement. Should such an accord materialise, we anticipate a swift stabilisation and a modest recovery in the Swiss economy, supported by the Swiss National Bank’s accommodative monetary stance.
In China, the new “trade truce” between the US and China was a positive signal, at least for the short run. However, the latest export numbers are weak and indicate the continuation of a challenging situation for China’s economy—particularly the export sector. Additionally, the government’s “anti-involution” campaign against overcapacities poses a risk to domestic growth, particularly in the industrial sector. However, these issues are addressed by additional fiscal stimulus packages, potentially bolstering growth in Q4 and into 2026. Yet, the ongoing economic and geopolitical rivalry continues to keep uncertainty elevated, with a comprehensive trade agreement between the United States and China still outstanding. The absence of such a deal leaves room for renewed tensions, making further trade disputes a key risk factor for China’s growth outlook and for global financial markets more broadly. Due to the shutdown, official US inflation data is currently unavailable, but alternative and private indicators continue to signal elevated price pressures. While the pass-through of tariffs has been milder than expected, underlying inflationary pressures—particularly in the domestic services sector—remain evident. This appears to have been a key factor, alongside stronger-than-expected labor market readings, behind the Federal Reserve’s “hawkish” rate cut and Chair Powell’s indication that further rate reductions are not guaranteed. With most official data on hold, both the Fed and market participants are effectively “dancing in the dark.”
In the Eurozone, inflation is expected to remain muted, hovering around the ECB’s 2% target until the economic recovery gains greater traction. In the UK, persistent inflationary pressures combined with a fragile growth outlook continue to challenge the Bank of England’s policy choices. Meanwhile, in Switzerland, inflation is likely to remain at the lower end of the SNB’s 0–2% target range. In China, despite a slightly stronger-than-expected CPI print, inflation remains subdued, reflecting weak domestic consumption and ongoing industrial overcapacity.
Pillar 2: Liquidity (POSITIVE)
Overall liquidity conditions remain positive for financial markets as prospects of Fed rate cuts decreases, the US government shutdown temporarily reduces fiscal support, and the US dollar stabilises. However, the US Fed announcing the end of quantitative tightening, the ongoing global rate cut cycle, and global liquidity injections all contribute to global liquidity dynamics and make liquidity a positive factor for real assets.
Our Global M2 proxy still point to a broadly supportive liquidity environment for risk assets through the end of the year. It suggests a less supportive—but not negative—liquidity environment and momentum for the first weeks of 2026.
Outside the US, China continues to pump M2 and injected another ¥1.16 TRILLION into the market last week. Year to date M2 growth is 8%--one of the key upside drivers of our Global M2 proxy.
Meanwhile, the Chinese Central Bank has effectively resumed quantitative easing. While the scale of the net purchase may not be significant yet, the policy shift itself is highly meaningful.
Still on the liquidity side, one key indicator we have been monitoring closely is the Treasury General Account (TGA)—essentially the US government’s bank account at the Federal Reserve. Its level has important implications for market liquidity. Following the debt ceiling increase in June, the TGA was expected to be replenished to around $850 billion. However, due to the ongoing government shutdown, balances have risen well above that level. Higher TGA balances effectively drain liquidity from the financial system, which has been a significant factor behind recent market softness. Once the government reopens, we anticipate a surge in fiscal spending, effectively injecting liquidity back into the markets.
Pillar 3: Earnings (POSITIVE)
Corporate earnings continue to be supportive.
Earnings growth continues to serve as a key tailwind for risk assets, particularly equities. The third-quarter reporting season had initially been expected to be soft because of tariffs, but this has not materialised. As the third-quarter 2025 earnings season progresses, the overall picture remains broadly supportive. In the United States, around three-quarters of S&P 500 companies have reported results at the time of writing, with 83% beating expectations by an average of 6%, supported by strong performances in the technology sector. Earnings per share are tracking 13% higher year-on-year, while revenue growth stands at 7.5%, implying expanding net margins. Guidance cuts have been limited to 5%, well below the 14% observed in the previous two quarters.
Technology earnings reaffirmed the strong adoption of artificial intelligence (AI) by corporates. Microsoft and Alphabet delivered robust, cloud-driven results, while Amazon impressed with stronger cloud growth and improved margin execution. Data centre operators continued to increase capital expenditure plans, benefiting AI semiconductor and hardware names globally. In recent months, the “AI trade” has also boosted emerging market equities, as semiconductor companies such as Samsung Electronics, SK Hynix, and TSMC posted strong performance.
Despite these solid results, market reaction has been relatively muted, as investors weigh slightly hawkish signals from the Federal Reserve, stretched valuations, and ongoing debates about the long-term profitability of large-scale AI investments.
In Europe, the third-quarter season has been more subdued. More than half of STOXX 600 companies have reported, with earnings growth turning slightly negative, down about 3% year-on-year, compared with an earlier estimate of +2%. The decline has been driven largely by weakness in the automotive sector, though financials have continued to outperform, helping to offset some of the overall weakness.
Looking ahead, we remain constructive on the earnings trajectory, as the US government shutdown is expected to be resolved in due course, while global liquidity remains supportive. For the fourth quarter, S&P 500 earnings are expected to grow 6% year-on-year and STOXX 600 earnings by 8%, as comparisons become easier. Into 2026, earnings growth is expected to become more balanced across regions and sectors as shown below.
Pillar 4: Valuations (NEUTRAL)
Equity valuations for large US companies remain elevated, although the growth and profitability of these mega-cap stocks are difficult to compare with historical standards. International equities appear more reasonably valued relative to their own history, but they do not benefit from the AI tailwind to the same extent as the US market. Within major markets, China has re-rated from less than 9x forward P/E in 2023–24 to around 14x currently, as investors once again view China as “investable”, the AI narrative gains traction, and consumer activity shows signs of bottoming.
Pillar 5: Market dynamics (POSITIVE)
Symphony indicators at 75% allocation to equity (25% US / 50% EU)
The US raw score declined from 64% to 55% over the week, as one market breadth indicator was downgraded to negative. Meanwhile, the European raw score rose from 70% to 75%, with one sentiment indicator improving from negative to neutral.
As a result, the portfolio’s overall equity allocation remains at 75%. However, the US equity allocation was reduced from 37.5% to 25%, in favour of European equities.
The current equity allocation of the portfolio is thus the following: 25% US equities / 50% European equities.
With 3 pillars (liquidity, earnings and market factors) signalling an overweight and 2 in neutral (macro, earnings and valuations), the weight of evidence is positive for equities.
