Equities

Special Report

QC is on the verge of exciting technological breakthroughs and will eventually present multiple sound investment opportunities. However, the industry is still in its early innings, and buying pure-play QC stocks is akin to buying lottery tickets. Big Tech may end up dominating the space. We recommend a cautious stance.

The US economy faces a new investment regime characterized by tighter fiscal and easier monetary policies. The market corrected fast, and a short-lived equity rebound is likely. However, over the long term, US equities face economic headwinds.

Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.

Investors should not chase the rally in European defense names any further. Too much good news has been priced in too quickly.

The Q4 earnings results were spectacular but are now in the rear-view mirror. Now, investors are laser-focused on tariff threats, earnings headwinds brought about by a stronger dollar, and an unhappy consumer. Our analysis of earnings commentary found that, while companies often refer to tariffs during their earnings calls, most are perplexed and still in a “wait and see” mode. A strong dollar is negative for earnings, but the recent dollar retrenchment will bring relief. Wealthy consumers are still spending, but there are early signs of stress.

There is an alternative to investing in US stocks: Do it via Europe (DIVE). Allocate to European sectors or stocks that are highly and positively correlated with the Magnificent 7 but do not suffer stretched valuations.

This week we are sending you a sector chart pack. In the front section of the chart pack, we review February’s performance, take stock of the recent macroeconomic developments, and examine whether market rotation will continue. We also review whether the US valuation premium relative to Europe is justified.

Interest rates will decline if the disinflationary trend continues, deficits are reduced, or economic growth falters. Oil prices are likely to spike over the short term, but the long-term outlook is unfavorable. Not all GenAI investments will pay off, and GenAI-induced productivity improvements do not justify current valuations.

The budget process and debt ceiling will cause stock and bond market volatility. US trade policies will provoke foreign pushback at a time of stretched valuations. Hence US politics and geopolitics will be bullish for US energy, but bearish for the internationally exposed US tech sector.

We expect market volatility to remain elevated due to uncertain economic, monetary, and trade policies. Barbell is the best portfolio strategy at this time. We recommend boosting defensive allocations to lower portfolio beta. We downgrade Industrials to equal weight and upgrade Pharma to overweight.