From the studio

Podcast: with Dominic Schnider, Head CIO Global FX & Commodity, and Constantin Bolz, CIO FX Strategist.
վ:۶Ƶ Chief Economist Paul Donovan on the latest tariff deadline announcements and more(12 mins)
վ:The AI Show: CIO's Sundeep Gantori on tech earnings(3 min)
Podcast:Investors Club: The Fed, the US dollar, credit opportunities, and gold(16 mins)

Thought of the day

US equities on Monday clawed back much of last week's decline as investors refocused on factors that should continue to underpin the stock rally. The S&P 500 rose 1.5%, the largest jump since May, while the tech-heavy Nasdaq climbed 2%.

While we still expect near-term volatility as the impact of US tariffs feeds through to the economy, we also believe the bull market is intact and expect further gains over the next year.

Corporate earnings are encouraging, and consumer spending is holding up. The second-quarter earnings season has continued to impress, with more than 75% of the companies that have reported beating sales estimates and nearly 80% beating earnings per share expectations. This is better than historical averages, and the median earnings beat has improved from the previous week. Forward guidance has also been solid, and results from Visa and MasterCard suggest that US consumers remain in good shape. While the number of jobs added to the US economy has declined significantly over the past three months, the rise in average hourly earnings and the extension of the workweek suggest that labor demand is not collapsing. We think that a still-resilient US economy, even if it’s slowing, should continue to support corporate profits.

Tech earnings are supported by robust capital spending and positive monetization trends. Tech results were in focus last week and the key takeaway is that the artificial intelligence (AI) growth momentum continues to gather pace. Both Alphabet and Microsoft raised their capex guidance, while cloud revenues of the three largest platforms posted strong growth of more than 25% year over year. While Amazon’s cloud growth disappointed relatively high expectations, management commentary suggested that its efforts to lower the costs of running AI applications would draw more customers over time. We have raised our AI capital spending forecast for this year and next, and expect global tech earnings to grow 15% in 2025, up from our previous estimate of 12%.

Policy easing should add another tailwind to equities. We think the latest labor data is weak enough for the Federal Reserve to justify cutting interest rates. While tariffs are beginning to push up inflation prints, we think a slower US economy should help offset some price pressures. Our base case remains that the US central bank will resume rate cuts at the September meeting, with a total of 100 basis points of easing by early 2026. Rate cuts have typically been supportive for stock markets during non-recession periods, and a likely weaker US dollar as a result of lower rates should offer a further tailwind. Historically, every 10% fall in the US dollar translates into a 2.5% rise in S&P 500 profits.

So, without expressing a view on any single stock, and while trade uncertainty and elevated valuations could be a modest headwind for equities in the near term, investors can consider ways to manage volatility while positioning for longer-term gains. Those who are already allocated to equities in line with their strategic benchmarks should consider implementing short-term hedges, and those underallocated should prepare to add exposure on potential market dips. We continue to see structural growth opportunities in our Transformational Innovation Opportunities of AI, Power and resources, and Longevity.