From the studio

From the studio
Podcast: Jump Start – the next tech catalyst, Fed easing, and French politics (5 min)
Podcast: Investors Club – the US equity outlook with CIO's Matt Tormey (8 min)
Video: Buy equities on dips – Opportunities in a rate-cut environment (8 min)

Thought of the day

The S&P 500 heads into September, a seasonally weak month for equities, after strong gains. The index is up nearly 30% from its April 2025 lows and recently crossed the 6,500 mark, before a modest pullback.

Over the past 10 years, September has been the worst-performing month for the S&P 500, with an average return of around minus 2%. The index has declined in September in six of the past 10 years.

But despite the potential for volatility and short-term pullbacks, we believe investors who are underallocated to equities should consider phasing in and using market dips to add equity exposure. In our base case, we expect the S&P 500 to reach 6,800 by end-June 2026, implying around 5% further upside, supported by the following reasons:

Earnings momentum remains strong. 98% of S&P 500 companies have reported second-quarter results, with 81% beating earnings estimates (FastSet). Third-quarter guidance is also positive. We forecast S&P 500 earnings per share of USD 270 in 2025 (8% growth) and USD 290 in 2026 (7.5% growth). While the S&P 500’s forward price earnings ratio, at around 22 times, is at the upper end of historical ranges, this is supported by robust earnings growth.

Fed rate cuts likely to support equities. Recent inflation data shows that while some price pressures persist, especially in services, cooling energy prices and steady goods inflation are helping to contain broader price pressures. Labor market data point to softer demand, prompting a more dovish tone from Federal Reserve officials. We expect the Fed to cut rates by 100bps over the next four meetings and believe this will be supportive of equities. Periods in which the Fed cuts rates while the economy is still growing have historically been associated with positive equity market returns.

Long-term AI trend remains intact.  Big tech’s second-quarter results were strong, with most companies beating both sales and EPS estimates. Forward guidance has also held up, and cloud revenues at the largest platforms grew by more than 25% year over year in the June quarter. We recently raised our global AI capex forecasts for this year and next to USD 375bn and USD 500bn, respectively. We expect global tech earnings per share growth at 15% this year and 12.5% in 2026.

Positive returns follow September and record highs. After a weak September, average returns for October and November over the past decade have been positive, at 1.2% and 4% respectively. Moreover, record highs are also no reason for concern: Since 1960, the S&P 500 has generated around 12% returns in the year following an all-time high, and about 38% over the following three years.

So, we recommend that investors who are underallocated to equities consider phasing in and using market dips to add exposure to preferred areas. Alongside AI, power and resources, and longevity, we favor US technology, health care, utilities, and financials.

In Europe, we like Swiss high-quality dividends, European quality stocks, European industrials, and our “Six ways to invest in Europe” theme. In Asia, we prefer China’s tech sector, Singapore, and India. And we see opportunities in Brazil.