Nervous bull
The current bull market in stocks that began in October 2022 has been powerful. Investors in the MSCI World index have benefitted from a 92% return in US dollars and 61% in euros to end-October boosted by i) low and falling interest rates in most countries; ii) modest positive economic growth combined with moderating inflation, and iii) government stimulus supporting growth in Europe and China.
Even if a “melt-up” scenario of accelerating stock market gains is possible over the first half of 2026 on the back of these prevailing forces, investors should recognise that this could still occur despite considerable geopolitical uncertainty and elevated market volatility. Maintaining exposure to stocks while limiting downside risks will be key.
Our recommendations
At this point in the business cycle, we advise clients to balance potential positive stock market returns against the ever-present risk of a market correction, via:
- Structured solutions with downside protection
- Currency-hedged US stock funds and ETFs
- Rebalancing of exposure away from US megacap stocks towards other regions and to more value and mid-/small-cap exposure
- Positioning in “out-of-favour” regions, sectors and themes
- Defensive sector and low-volatility stock funds and ETFs
- Equity market-focused hedge funds and alternative UCITS funds
- Other asset classes including commodities and other real assets
Key risks
- Current profits can be lower than the markets’ growth if the markets pursue their performance for longer.
- Economic recession could bring this bull market to an end, should the US slowdown prove deeper than expected.
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