Equities
The S&P 500 finished last week at an all-time high as optimism over earnings has pushed the Iran conflict out of the spotlight. Despite uncertainty in the Strait of Hormuz, we do not think investors have enough evidence to justify underweighting equities and other risk assets.
The longer the Strait of Hormuz remains closed, the more likely the Eurozone will experience an economic recession, as higher energy prices, supply chain disruptions, and weaker global demand slowly grind the European economy to a halt. The relief rally is running out of time. Investors should add exposure to the best-performing sectors following past oil supply shocks: Energy, pharma, and utilities.
Chinese onshore equities are riding the global “scarcity trade,” powered by tight semi supply and surging alternative-energy demand. How should investors position in this environment?
The S&P 500 rally is likely more than just risk-relief. Market internals reflect strengthening economic growth and higher inflation, with support coming from robust earnings. Tight financial conditions have compressed valuations, particularly within the Tech sector. We are initiating a long Software trade ahead of earnings season, given that multiples have declined and earnings growth is strong.
In this screener report, we explore opportunities in nuclear theme, geopolitical hedge, and winners from AI productivity boom.
The long-run rise in S&P 500 margins reflects more than a shift toward higher-margin sectors. Most of the increase has come from higher profitability within sectors, supported by favorable mix of macro forces. Looking ahead, many of those tailwinds are likely to fade, with AI-driven productivity gains as a potential offsetting upside driver of margins.
The relief rally in stocks can continue a while longer. However, much can still go wrong. As such, we are retaining a 12-month underweight to stocks but are moving to neutral on a short-term tactical horizon.
Trump’s breaking point is encapsulated by the combined drawdown in stocks plus bonds reaching 12-15 percent. On this basis, we describe how to ‘trade Trump’. Plus, we highlight three positions that should do well independent of Trump’s actions, including a new trade.
The Turkish financial markets will struggle in the very near term, but beyond that, the cyclical disinflation process will resume. Fixed-income investors should put Turkish 2-year local currencybonds on a ‘buy’ watch list.
We expect the S&P 500 to deliver $308 of EPS in 2026, with a year-end target of 7700. Revenue growth drives upside, with little margin or multiple expansion. With economic growth tilted toward investment, we are overweight Technology, Industrials, and Materials, market-weight Financials, Energy, Health Care, Communication Services, and Real Estate, and underweight Consumer Staples, Consumer Discretionary, and Utilities.