Equity markets have had a volatile start to the year
• The S&P 500 closed at a record high of 6,144 on 19 February, but has since pulled back amid tariff and tech-related uncertainty.
• The index was down 2% year-to-date as of 7 March.
• Equity markets in Europe and parts of Asia have outperformed so far this year.
But we think the fundamental backdrop remains constructive
• We expect uncertainty over US trade and fiscal policies, inflation, and the pace of Fed easing to continue to trigger near-term volatility.
• But solid US economic and earnings growth, and the prospect of gradual Federal Reserve rate cuts, should be supportive for stocks.
• Artificial intelligence will likely remain a key driver of equity market returns for several years.
We believe there is more to go in equities
• We rate US equities as Attractive. We also favor companies exposed to AI and power and resources. Structured strategies can help investors navigate near-term volatility.
• Investors can position for potential positive catalysts in Europe (e.g., a pro-growth shift in Germany's fiscal policy) via structured strategies on the DAX, or via individual stocks exposed to these themes.
• We see opportunities in Asia ex-Japan equities, including India and Taiwan.
New this week
The S&P 500 fell 3.1% in the week ending 7 March, its worst weekly performance in six months, amid tariff and tech-related uncertainty. The Nasdaq fell 3.45%. The VIX index of implied US equity volatility rose to its highest level since December.
One liner
A solid US economic backdrop, positive earnings growth, falling interest rates, and the rise of AI create a favorable environment for equities, in our view.
Did you know?
• Within the US equity market, the IT, financial, utilities, and health-care sectors are among those we see as Attractive.
• We believe that the recent launch of DeepSeek's lower-cost AI model will ultimately lead to even broader proliferation of AI, enhancing growth and productivity.
• We expect 8% earnings per share growth for the S&P 500 in 2025.
Investment view
While near-term volatility is likely amid US policy uncertainty, we believe solid US economy, healthy earnings growth, and AI tailwinds set up a constructive environment for stocks. We rate the US market as Attractive, and favor key growth themes like AI and power and resources. Structured strategies can help investors navigate market volatility. In Europe, we like structured strategies on the DAX and thematic approaches to position for potential positive catalysts (e.g., pro-growth policies in Germany, or a ceasefire in Ukraine). Please see “Six ways to invest in Europe” for more.
