Jenson Holmes, from Titan Wealth, offers this week’s round-up of global markets
WITH the second-quarter reporting season drawing to a close, corporate results have continued to exceed expectations. Global companies are delivering earnings growth at a pace more commonly seen in the early stages of an economic recovery, while profit margins are also moving sharply higher.
There are several supportive tailwinds for earnings at present, including a resilient and strengthening global economy, productivity gains beginning to emerge from significant investment in AI, a de-leveraged corporate sector and lower tax rates. The breadth of the recovery is also broadening out beyond a handful of US technology names, with improving earnings momentum in Europe, Japan and emerging markets.
Against this background, we remain constructive on global equities for the next year or so. However, the market leadership is changing, with non-US markets and more attractively valued sectors such as value and cyclicals resuming the outperformance seen last year.
While negotiations between the US and Iran continue to ebb and flow, oil prices have responded appropriately, but with decreasing levels of volatility. As the mid-term elections draw closer, US priorities are clearly changing. This was reflected in comments from Vice President JD Vance, who indicated that the primary focus is no longer its nuclear ambitions but rather lowering gas and energy prices for Americans, hence bringing down inflation and allowing the Federal Reserve to ease monetary policy. US Treasury Secretary Bessent subsequently warned that Iran could face economic isolation “like the world has never seen before” should negotiations deteriorate.
Despite the geopolitical uncertainty, equity markets in particular have become less sensitive to developments in the Gulf. This is largely due to the positive earnings tailwind, which is also helping to make valuations more attractive.
Towards the end of the week, weaker sales data, disappointing employment numbers and slowing inflation prints influenced market expectations for US interest rates.
Investors now expect the Fed to keep rates higher for longer, with any further policy tightening appearing less likely in the near term.
Recent US CPI and Producer Prices came in below expectations, suggesting that price pressures in the US continue to moderate. At the same time, employment data indicated that underlying wage pressures are less of a concern than previously thought.
On one hand, easing inflation and a potentially more supportive Fed strengthen the case for holding bonds.
On the other, high levels of government borrowing and ongoing fiscal concerns mean investors are still demanding higher returns to lend over longer periods. The US yield curve is likely to steepen further as a result.
Although risks remain, we believe investors should focus on the opportunities created by a strengthening global economy, healthy consumer spending, robust corporate balance sheets and continued investment in transformative technologies.
While periods of volatility are inevitable, the current environment continues to favour quality businesses with durable earnings growth and exposure to long-term structural trends.
