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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 maintaining a constructive view on equities (neutral / positive). Below we review the main drivers for each of them.
Pillar 1: Macro cycle (NEUTRAL)
Global growth remains below historical average, but as long as no additional shock will occur, we expect the global economy to withstand the many elevated uncertainties, including tariffs, energy, geopolitics, and fiscal policy.
Overall, economic surprises in major countries/regions remained on positive levels – except China.
In the United States, economic data shows a generally solid picture of the current growth environment. Despite the data, real-time economic indicators point to a slow-moving decline in economic activity for the remainder of the year, while additional fiscal support should help to impede a sudden drop in demand. However, several downside risks prevail, such as tariffs, energy prices, debt burden for households and the government.
In the Eurozone, we expect economic growth to recover but to remain weak for the remainder of the year, as US tariffs, the euro status, and elevated energy prices dampen confidenceplus the war in the Ukraine still ongoing. Fiscal stimulus should help to spur growth towards the end of the year and in 2026.
In Switzerland, we anticipate a stabilisation at a modest pace, supported by low rates, though short-term headwinds persist due to a strong franc and global trade uncertainties.
Meanwhile in China, the tariff impact is expected to be balanced out by fiscal support, but overcapacities and real estate imbalances are weakening consumer and business sentiment.
Recent inflation data in the US reflect the anticipated impact of tariffs, while the stop-and-go pattern of orders around tariff deadlines is likely to create a noisy and erratic inflation picture. Greater clarity on final tariff levels would help improve visibility on the outlook. In the UK, inflationary pressures remain persistent, whereas in the Eurozone, we maintain our relaxed inflation outlook.
Pillar 2: Liquidity (POSITIVE based on forward-looking factors)
Monetary policy remains restrictive in the US and the UK, but no longer in continental Europe: the ECB is close to or even at the end of its cutting cycle, while the SNB hit the bottom (at zero), bearing any strong FX and energy price developments. The Fed is still in a “wait-and-see” mode for more visibility on the tariff impacts, as economic activity and the labour market remains solid. US-inflation faces upside risks that limit the Fed’s room for manoeuvre. Similarly, the BoE, which has also room to cut rates, but faces meagre growth but upward inflation dynamics.
Against this backdrop, our global liquidity proxy continues to point to a supportive liquidity environment for risk assets, in the months ahead. According to the tight relationship displayed on the chart below, a brief summer pause in the upward trend was to be expected. Provided the relationship continues to hold, the upward trend in risk assets could be expected to resume in the coming weeks. Looking ahead, the US dollar will be decisive for the evolution of our Global M2 proxy.
Fed liquidity is also still supportive for the time being, but it is becoming a temporary headwind now that the debt ceiling has been lifted. The increase in the US debt ceiling (by $5 trillion), acted in the “One Big Beautiful Bill Act” allows the US Treasury to catch up on bond and bill issuance. The Treasury General Account at the Fed is being replenished after the drop since the beginning of the year, exerting a de facto temporary withdrawal of liquidity from markets.
Overall liquidity conditions remain favourable for risk assets but could, in the coming months, become less supportive than they have been recently.
Pillar 3: Earnings (POSITIVE)
We are in the middle of the earnings season in the US, and the overall picture is rather constructive.
Earnings scorecard: For Q2 2025 (with 66% of S&P 500 companies reporting actual results), 82% of S&P 500 companies have reported a positive EPS surprise and 79% of S&P 500 companies have reported a positive revenue surprise.
Earnings growth: For Q2 2025, the blended (year-over-year) earnings growth rate for the S&P 500 is 10.3%.
Earnings revisions: On June 30, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q2 2025 was 4.9%. Nine sectors are reporting higher earnings today (compared to June 30) due to positive EPS surprises.
Earnings guidance: For Q3 2025, 30 S&P 500 companies have issued negative EPS guidance, and 27 S&P 500 companies have issued positive EPS guidance.
Source: Factset
Markets are also starting to look at 2026 estimates— a year marked for double-digit growth for S&P 500 earnings.
Admittedly, the earnings season is not as positive for EU companies, which are suffering from the strength of the euro. The silver lining comes from 2026 which is also expected to be a year of double-digit earnings growth for Stoxx 600 index companies.
Pillar 4: Valuations (NEUTRAL)
As shown on the table below, US equity valuations are getting extended.
On the international side, equities are not as expensive as the US. The MSCI World trades on 17x next 12-months earnings estimates, EuroStoxx 50 on 15.8x and MSCI Emerging Markets at 15x.
Note that most markets are expensive versus bonds.
Overall, we remain neutral on valuations at this stage.
Pillar 5: Market factors (POSITIVE)
Overall, our market dynamics remain favourably positioned, whether in the US or Europe.
Both market breadth and investor sentiment in Europe were downgraded to neutral last week. The number of European stocks trading above their 200-day moving average fell below the trigger threshold.
With 3 pillars (liquidity, earnings and market factors) signalling an overweight and 2 in neutral (macro, earnings and valuations), the weight of evidence is neutral to positive for equities.
TACTICAL ASSET ALLOCATION (TAA) – 25.6.2025
