Summary
1. Relief for Consumers as Hormuz Strait Tensions Ease: though many underlying questions remain unresolved and sporadic skirmishes persist. Oil prices plummeted in June from over USD90 per barrel to USD72, triggering a drop in fuel costs at the pump. As a result, consumers can now reallocate spending to other areas.
2. Resilient US economy defying expectations: Despite earlier pressure from rising energy prices, the US economy continues to outperform forecasts. Job growth remains robust, and strong capital expenditure is sustaining GDP expansion.
3. Inflation and Monetary Policy Shifts: While lower energy prices have eased inflationary concerns, other factors—including a tight labor market and supply constraints (particularly in semiconductors and tech hardware, driven by the AI boom)—are fueling price pressures. Consequently, market expectations for US interest rates have shifted: rate cuts are now unlikely, with anticipation growing for potential tightening by late 2026 (possible overheating, cf. chart 1).
4. US and tech volatility: High US equity valuations, uncertainty over AI monetization - particularly for hyperscalers - and potential shifts in monetary policy are contributing to market volatility, particularly in the tech sector. Symbol of this nervousness: OpenAI has decided to postpone its planned IPO.
5. Summer often an opportune moment to rebalance portfolios: While US (technological) innovation and entrepreneurship are expected to remain dominant for years, tactically, we recommend to rebalance geographic and sector exposure. Revisit relatively cheaper areas of the market such as global SMID caps, Japan, Europe and Emerging markets.
6. Sector preferences: We favor value and cyclical sectors, with a particular focus on European banks, (OW) which align well with our current outlook—especially as the sector index has recently broken out. Global Health care (OW) and Industrials (OW) also show signs of improvement after lagging.