Let’s begin with the macro backdrop. The Goldilocks scenario implying a moderate inflation, resilient growth, and dovish central banks, remains the cornerstone of our strategy. In the U.S., growth is stabilising around 1.5%, supported by solid household consumption and wage growth. However, the labour market is softening faster than expected.
Indeed. Powell’s Jackson Hole speech confirmed the Fed’s pivot toward employment concerns. Markets are now fully pricing in a rate cut in September, and we expect further easing into 2026. Inflation is still above target and services inflation surprised to the upside in July. But the Fed seems willing to tolerate it to support growth and the bar for delaying cuts is high.
In Europe, inflation is at the central bank’s target and growth remains subdued for now. But the fiscal stimulus in Germany and infrastructure investment are expected to support growth into 2026. In this environment, the ECB is nearing the end of its easing cycle. It is expected to hold rates steady in September, with a final cut possible in December.
Financial markets kicked off August with a risk-off tone, triggered by renewed tariff tensions and a softer-than-expected U.S. jobs report. However, sentiment quickly rebounded, with both the S&P 500 and Nasdaq reaching new all-time highs, underscoring the market’s resilience and continued appetite for risk.
Earnings have been robust especially in the U.S. Q2 results confirmed our forecast of 10% earnings growth for 2025 in the US. Strong earnings growth, resilient economy, and Fed cuts support equity markets, but we remain neutral on equities considering high valuations. On our asset allocation, we favour technology, industrials, and financials. These sectors benefit from the current macro setup and offer structural growth.
On Fixed Income, the bond market continues to react to central bank signals. In the U.S., the yield curve is steepening further, driven by expectations of rate cuts and growing concerns around the Fed’s independence, which raises the risk of long-term inflation expectations becoming unanchored. We maintain a neutral stance on Treasuries, with a preference for positioning in the belly of the curve.
In France, Prime Minister François Bayrou announced a vote of confidence, linked to a budget reduction plan. This announcement came as a surprise and caused the French OAT-Bund spreads to widen to around 80 basis points, its highest level since April. At this level, the spread seems fairly priced.
In Swiss franc portfolios, we have increased exposure to structured products to enhance returns, given the low-yield environment. We have also reduced the exposure to Swiss bonds and shifted toward real estate and alternatives. We continue to hold gold, which offers diversification and protection in a fragile environment.
So, to wrap up: the goldilocks scenario continues to support risk assets. However, valuations remain stretched, technical indicators suggest that markets are slightly overbought. This warrants a more diversified approach.
