Upcoming earnings season tests markets
Although the current situation looks more like an easing on the customs front, we are concerned about the upcoming earnings season. In our opinion, earnings expectations in the US and the valuation of the US equity market remain too high, even after the recent correction. The continuing high level of uncertainty is having a negative impact on consumers and companies. Upcoming negative earnings revisions will trigger renewed pressure on equities. We therefore remain underweight in US equities and favour much more favourable regions and sectors.
What happened?
This week has seen some calm on the markets, as there has also been little news from the customs front. On a positive note, it looks increasingly like trade deals are being struck and China is now also signalling its willingness to negotiate. An easing of tensions is therefore more likely than a further escalation, which is urgently needed in view of the average 20% tariff on US imports. The planning uncertainty caused by the tariffs is already damaging the economy and investment plans have been put on hold for the time being. It is fitting that United Airlines has now issued scenario-based guidance and reported that it is currently impossible to predict the further course of business. This uncertainty is poison for the financial markets. The US dollar has depreciated further and yields on US Treasuries and the volatility index for US equities remain high. Despite a brief rebound in equities, the shift away from the USA appears to be continuing. The situation therefore remains tense.
Profit expectations and valuation in the USA too high even after correction
How do we assess the situation?
The upcoming earnings season will be a test for the stock markets. Analysts continue to expect earnings growth of +13% for 2025 in the USA. We believe this is unrealistic. Irrespective of the final level of trade tariffs, the economy will already weaken visibly at a minimum. Our economists have therefore also reduced the relevant growth forecasts. Some companies, such as Nvidia and ASML, have already warned of lower profits as a result of the trade war. The first negative earnings revisions have therefore been made in recent days. This trend is likely to continue, which could ultimately exert renewed pressure on the stock markets. With earnings revisions of -5% alone, the S&P 500 would have to correct by a further 12% for the P/E ratio to return to its 10-year average (18). For an average recession P/E ratio of 14, the equity markets would then have to be 33% lower. This would not correspond to our main scenario of bilateral agreements in the trade dispute. However, we expect US equities to be further tested and remain underweight. However, the index level of 5,000 is a strong support level for the S&P 500, which is why this would be a possible buy level if the political situation does not escalate further in the meantime.
How are our investment tactics performing?
On the currency side, the strong underweight in the US dollar is paying off. However, the overweighting of longer-dated foreign currency bonds and emerging market equities has so far been detrimental. Alternative investments such as insurance-linked securities and gold bring the hoped-for stability to the portfolio.
Relative positioning, as of April 17, 2025
What adjustments are we making?
After increasing our underweight in commodities and reducing our equity allocation last week, we have not made any further adjustments this week. We are continuing to analyse the situation and are monitoring in particular the development of earnings revisions in the current reporting season and the reaction of China in the trade conflict. In addition, the US consumer remains in focus, as this could provide the first indications of a stronger economic slowdown.
Legal disclaimer Switzerland
Legal disclaimer Switzerland
Notes on the charts: “BLOOMBERG®” and the Bloomberg indices listed herein (the “Indices”) are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the Indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by the distributor hereof (the “Licensee”). Bloomberg is not affiliated with Licensee, and Bloomberg does not approve, endorse, review, or recommend the financial products named herein (the “Products”). Bloomberg does not guarantee the timeliness, accuracy, or completeness of any data or information relating to the Products.
As of 01.06.24
This document only serves advertising and information purposes, is for distribution in Switzerland only and is not directed at persons in whose nationality or place of residence prohibit access to such information under applicable law. Where not indicated otherwise, the information concerns the collective investment schemes under the law of Luxembourg managed by Swisscanto Asset Management International S.A. (hereinafter "Swisscanto Funds"). The products described are undertakings for collective investment in transferable securities (UCITS) within the meaning of EU Directive 2009/65/EC, which is governed by Luxembourg law and subject to the supervision of the Luxembourg supervisory authority (CSSF). This document does not constitute a solicitation or invitation to subscribe or make an offer to purchase any securities, nor does it form the basis of any contract or obligation of any kind. The sole binding basis for the acquisition of Swisscanto Funds are the respective legal documents (management regulations, sales prospectuses and key information documents (PRIIP KID), as well as financial reports), which can be obtained free of charge at https://products.swisscanto.com as well as at Swisscanto Fondsleitung AG, Bahnhofstrasse 9, CH-8001 Zurich (also acting as representative of the Luxembourg Swisscanto funds in Switzerland) or in all offices of Zürcher Kantonalbank. Paying Agent for the Luxembourg Swisscanto funds in Switzerland is Zürcher Kantonalbank, Bahnhofstrasse 9, CH-8001 Zurich. Information about the sustainability-relevant aspects in accordance with the Regulation (EU) 2019/2088 as well as Swisscanto's strategy for the promotion of sustainability and the pursuit of sustainability goals in the fund investment process are available on the same website. The sub-fund referred to in the document is subject to Article 9 of Regulation (EU) 2019/2088. The distribution of the fund may be suspended at any time. Investors will be informed about the deregistration in due time. The investment involves risks, in particular those of fluctuations in value and earnings. Investments in foreign currencies are subject to exchange rate fluctuations. Past performance is neither an indicator nor a guarantee of future success. The risks are described in the sales prospectus and in the PRIIP KID. The information contained in this document has been compiled with the greatest care. Despite professional procedures, the correctness, completeness and topicality of the information cannot be guaranteed. Any liability for investments based on this document will be rejected. The document does not release the recipient from his or her own judgment. In particular, the recipient is recommended to check the information for compatibility with his or her personal circumstances as well as for legal, tax and other consequences, if necessary, with the help of an advisor. The prospectus and PRIIP KID should be read before making any final investment decision. The products and services described in this document are not available to U.S. persons under the relevant regulations (in particular Regulation S under the U.S. Securities Act of 1933).
Data as at (where not stated otherwise): 11.2024
© Zürcher Kantonalbank. All rights reserved.
