At a glance: What you need to know from last week
Staying attentive to market risks, but openminded to investment opportunities
Global easing cycle poised to resume
Central banks were back in focus last week, as global policymakers continue to respond to shifts in economic data and persistent uncertainty around global trade.
The European Central Bank (ECB) cut interest rates by 25 basis points last week, marking its eighth reduction of the current cycle and bringing the deposit rate to 2%. This move followed data showing Eurozone inflation fell below the ECB's 2% target for the first time since September. Meanwhile, the Federal Reserve signaled it may resume easing later this year despite the latest Fed Beige Book pointing to already softer economic activity across the US. Recent data reinforced this trend as the ISM Services PMI, a gauge of service-sector sentiment, slipped into contraction territory for the first time in nearly a year, while manufacturing activity declined for a fourth consecutive month. Against this backdrop, policymakers remain data-dependent as they monitor the impact of President Trump's tariffs on the economy.
But ongoing uncertainty is likely to spur more rate cuts around the globe, as policymakers seek to support a gradual growth deceleration while containing any inflationary pressures. In our view, the ECB will cut rates again in July, and further trade tensions could prompt even deeper reductions. Moreover, the Swiss National Bank is also expected to lower rates to 0% or below. And in the US, while we expect growth to slow, a recession appears avoidable. Thus, we see Fed rates falling by 100 basis points over the next year.
Takeaway: Lower rates underscore the need for investors to put excess cash to work. While cash may feel safe amid uncertainty, we expect returns to decline further and for cash returns to lag inflation (negative real cash returns) over the long term. Should central banks ease more aggressively to support growth, cash rates could fall quickly. We like diversified fixed income and select equity income strategies as a means of putting cash to work, while underallocated investors can use phasing-in strategies to invest gradually in diversified portfolios for potential long-term wealth appreciation.
AI momentum continues amid volatility
US equities continued to rebound last week, climbing to their highest levels since February despite mounting evidence of slowing economic activity. The S&P 500 and the tech-heavy Nasdaq are now just 2.4% and 3.3% below their all-time highs, respectively.
While market swings have persisted as investors react to shifting trade and economic headlines, secular trends continue to provide a supportive backdrop for equities. Innovation remains a key driver of long-term equity performance in our view, and recent developments reinforce our conviction in the potential of our Transformational Innovation Opportunities (TRIOs): artificial intelligence (Al), power and resources, and longevity. Robust demand for Al compute is fueling record capital investment, with global Al capex expected to rise 60% this year and 33% in 2026, even as USChina tech tensions persist and as recent reports question whether artificial general intelligence is achievable.
In the power and resources space, surging electricity demand driven by Al data centers and electrification has led to major long-term energy contracts and strong sector earnings. Furthermore, May executive orders from US President Trump targeted nuclear generation expansion, reviving the nuclear fuel industry, and streamlining regulation in order to achieve an expanded target of quadrupling US nuclear capacity to 400 GW by 2050 (previously the Biden administration targeted a threefold increase to 300 GW). This is translating into increased investment—International Energy Agency data illustrate that spending on nuclear generation grew by c.14% per annum between 2021 and 2024, after a period of stagnation between 2015 and 2020.
Meanwhile, the longevity theme is supported by rising global demand for healthcare solutions, with the sector poised for growth despite near-term policy uncertainty and regulatory risks.
Takeaway: For investors seeking to benefit from enduring secular trends, we believe our TRIO themes offer durable growth potential that can outlast short-term volatility. We recommend a balanced approach to Al, combining high-growth semiconductors with resilient software and platform companies. In power and resources, we favor the electrification value chain, while in longevity, we see opportunities in select pharmaceutical, medtech, and health care service providers, as well as companies focused on nutrition and wellness. Investors anxious about the potential for further setbacks can also access the themes through structured strategies with capital preservation features, or via instruments that generate yield and seek to buy equities at lower prices than today's.
US labor market sends mixed signals
US employment figures last week underscored a labor market that remains balanced, but with pockets of weakness emerging. Nonfarm payrolls rose by 139,000 in April, surpassing consensus expectations, while the unemployment rate held steady at 4.2%. Payroll gains were concentrated in health care and leisure and hospitality, with most other sectors little changed. Notably, average hourly earnings increased by a solid 0.4% month over month. However, the household survey pointed to a decline in employment, and the labor force participation rate slipped to 62.4%.
Additional data showed JOLTS job openings rising to 7.4 million in April and jobless claims edging up to 247,000, near the upper end of their recent range.
While there are signs of softening, the US labor market remains wellbalanced in our view, with moderate growth in both payrolls and wages supporting household income and consumption. Overall, the jobs market is not demonstrating weakness of an order that would prompt the Fed to cut rates at its June monetary policy meeting.
That said, we do expect further moderation in the second half of 2025 as tariffs and other policy measures exert greater pressure on the economy, likely leading the Fed to resume easing policy in September.
Takeaway: We expect the US to avoid a full-blown recession this year, though any further deterioration in economic data could unsettle market sentiment. Phasing into equities can help investors manage near-term volatility while positioning for longer-term opportunities. We also like high-quality government and investment grade bonds as a source of yield, mindful that in adverse economic scenarios they could generate capital appreciation as yields fall while also steadying portfolios.