From the studio

Video: Allocating Assets — portfolio strategy with Adrian Zuercher and Mark Andersen (8:35)
Video: Tech analyst Sundeep Gantori on earnings and US tech export controls (1:54)
Podcast: Kurt Reiman on Trump's tariffs after the IEEPA court ruling (13:06)
Podcast: CIO Eurozone and UK economist Dean Turner discusses what comes next for trade talks with Europe and Switzerland.
Podcast: Giovanni Staunovo and Wayne Gordon from CIO's commodities team discuss what comes next for the precious metal.

Thought of the day

Financial markets started June with caution, after the S&P 500 registered the largest monthly gain in May since November 2023. The Hang Seng Index fell 0.6% on Monday amid renewed trade tensions, while US equity futures are pointing lower before the market open. At the time of writing, gold is up 2% to USD 3,353/oz.

US President Donald Trump said late on Friday that he would double the tariffs on steel and aluminum to 50% starting this week and accused China of breaching their trade agreement reached in Geneva last month. Beijing on Monday rebuked the claim, saying the US violated the trade truce and that China will take “resolute and forceful measures to safeguard its legitimate rights and interests.” Earlier last week, a federal trade court ruled the bulk of Trump’s tariffs unlawful, although an appeals court offered a temporary stay for the levies to remain in place for now.

We continue to expect market volatility as investors digest fresh tariff headlines and incoming US economic data. Fiscal worries remain, and geopolitical tensions are heating up. But we also expect US stocks to move higher over the next 12 months and see ways to manage near-term volatility for longer-term gains.

The effective US tariff rate should remain lower than what was announced two months ago. Tariffs remain a strategic focus of the Trump administration, and investors should continue to expect an aggressive, tariff-based trade policy from this government. Trump’s latest threat on the steel and aluminum levies underscores our view that product-specific tariffs could take on more significance while the administration seeks to appeal the ruling from the Court of International Trade. But developments over the past two months showed that the Trump administration is sensitive to short-term market risks, and that it remains incentivized to reach deals with the country’s trading partners. Our base case remains that the effective US tariff rate should slow US real GDP growth to around 1.5% this year, not a big enough impact to drive the economy into a recession.

The corporate earnings backdrop remains supportive. The recent first-quarter reporting season was stronger than expected, and we now forecast earnings per share for S&P 500 companies to rise 4% this year, up from our previous forecast of no growth. We also expect earnings to grow 8% in 2026, supported by a pickup in real wage growth, clarity on tax policy, deregulation, and the resumption of Federal Reserve interest rate cuts later this year. Historically, forward returns have been strong when implied stock volatility is high and sentiment is low. We see the S&P 500 at 6,400 by June next year.

Our Transformational Innovation Opportunity (TRIO) themes offer compelling long-term opportunities. Innovation remains a key driver of long-term equity performance, and we maintain strong conviction in the potential of our TRIOs, including Artificial intelligence (AI), Power and resources, and Longevity. Recent company earnings point to strong underlying AI demand, steady cloud growth, and significant investments in compute and power to drive AI data centers. In the health care sector, we believe a combination of policy clarity over time, attractive valuations, and potential upside to earnings estimates should lead to good performance. Historically, longer-term and diversified investors have been rewarded for staying invested or deploying capital in uncertain markets.

So, we think investors can use periods of volatility or pullbacks to gradually add to US equities or balanced portfolios, as phasing into the market can be an effective way to position for medium- and longer-term upside while managing timing risks. Capital preservation strategies can be another approach to help manage near-term downside.