Rhythmic Reasoning_Highlights_SWM_EN - Flipbook - Page 5
G L O B A L I N V E S T M E N T S T R AT E G Y
Easing trade tensions, broadening performance, and healthy earnings growth
forecasts may enable further price appreciation
Investor sentiment this year has been heavily influenced by White House policy and its
goal to remake trade relationships with the blunt instrument of tariffs. As it stands
today, there are still some outstanding issues with respect to global trade
relationships, including the staying power of high tariff rates on key trading partners,
as well as the legality of these tariffs which will be assessed later this year by the
Supreme Court. While these issues remain unresolved, it is fair to say that trade policy
uncertainty has diminished in recent months, and along with it, so has market
volatility
Global equity markets have not missed a beat post-Liberation Day, buoyed by
thawing trade tensions and healthy corporate results as well as optimism around AI
trends. Earnings growth forecasts for this year and next remain healthy for both the
global benchmark, as well as individual markets like the U.S. and Canada. Chatter
around tariffs and a possible recession have also died down, as evidenced by news
trends data.
Encouragingly, equity market breadth has improved compared to the last two years
that saw dominant performance from the Magnificent 7 (Mag 7) cohort. This
broadening can also be seen in profitability metrics, with the remaining S&P 500
constituents starting to see net profit margins move in the right direction, following in
the footsteps of their Mag 7 counterpart.
With these tailwinds in mind, there are a number of risks investors should keep in
mind. Macroeconomic and policy risks aside, concentration risk still warrants
consideration as the largest 10% of S&P 500 stocks account for over three-quarters of
the index’s market capitalization. Elevated valuations may amplify this risk and could
mean that any negative news pertaining to these mega-cap names will
disproportionately impact the overall market.
On balance, we think the factors we’ve highlighted are constructive for corporate
profit growth, enabling further price appreciation in risk assets. That said, we have
also highlighted a number of risks to be mindful of, which point to the importance of
avoiding excessive risk-taking in portfolios. A measured approach to portfolio
construction, one that includes a healthy blend of risk assets like equities and
securities with capital preservation qualities like fixed income, is prudent to manage
risk.
Market volatility has eased as trade policy uncertainty has
waned
10
60
50
8
40
6
30
4
20
2
10
0
Jan 2025
0
Mar 2025
May 2025
Jul 2025
Bloomberg U.S. Trade Policy Uncertainty Index - LHS
Sep 2025
VIX Index - RHS
Heavy concentration could amplify downside risks
80%
Current
70%
Median
60%
50%
40%
1926
1940
1954
1968
1982
1996
2010
U.S. market-cap share of largest 10% of S&P 500 stocks
Median
Current
2024
