Connecting the dots

What Investment Strategy Should Investors Consider After a “Cruel Summer”?

Economic leading indicators point to expansion in both services and manufacturing, though the US labor market remains sluggish in a continuing K-shaped environment. In equity markets, second-quarter earnings growth was significant across Europe and Asia, showing a broadening beyond artificial intelligence into other sectors. Key investor concerns have eased as private credit stabilizes and earnings continue to support capital expenditure. Meanwhile, long-term bond yields have risen to multi-year highs amid investor demands for higher compensation, contributing to a steepening yield curve and a softer dollar. The macroeconomic dots may not line up neatly but connecting them remains essential to help clients navigate what comes next.

Key takeaways

1. Broadening Earnings Momentum Drives Our Regional Equity Preferences 
   We observe solid economic resilience and a broadening of corporate earnings growth beyond AI-related leaders into wider sectors and geographies. On this basis, our positioning remains tilted toward risk assets with a moderate cyclical focus, currently favoring equity allocations across Switzerland, the Eurozone, and emerging markets, while acknowledging the associated market volatility and currency risks.
   
   
2. Constructive Fixed Income Stance Backed by High Quality and Longer Duration
   While supply-side inflation pressures are expected to moderate, persistent fiscal deficits and heavy sovereign debt issuance mean investors continue to demand higher compensation for long-term bonds. We maintain a lower allocation to liquidity in favor of high-quality fixed income and longer duration, balancing attractive yield opportunities against interest-rate and yield-curve volatility.
   
   
3. Structural Headwinds and Fiscal Deficits Reinforce Portfolio Diversification
   Ongoing geopolitical tensions, sovereign debt expansion, and long-term fiscal sustainability concerns continue to support our positive view on real assets. Alongside our core equity and bond allocations, we view gold and solid currencies like the Swiss franc as essential portfolio diversifiers, while noting that safe-haven assets remain subject to price swings and monetary policy shifts.