From the studio

Podcast: Ulrike Hoffmann-Burchardi's Signal over Noise, on Spotify and Apple (6 mins)
Video: Investors Club | Big tech earnings and the UAE's exit from OPEC (8 mins)
Video: CIO Monthly: Mark Haefele on investing in a fast-changing world (3 mins)
Video: Top of Mind in APAC | Min Lan Tan on whether the rally can continue (6 mins)

Thought of the day

US equities hit a fresh record high at the start of May as corporate earnings continue to show strong profit growth. Brent crude oil prices have also retreated from their four-year highs, and US President Donald Trump said the US will begin guiding some stranded commercial ships out of the Strait of Hormuz. S&P 500 futures are pointing 0.1% higher ahead of the US market open on Monday.

But it remains to be seen how vessels can sail through the narrow waterway smoothly. Media reports suggest that the initiative is a process through which countries, insurance companies, and shipping organizations can coordinate moving traffic through the Strait, and that US Navy warships are not necessarily involved. Iran, meanwhile, warned US forces to stay out of the Strait, adding that its forces would "respond harshly" to any threat. With no significant progress reported on the negotiations between Washington and Tehran, Brent crude oil was trading near USD 110/bbl at the time of writing, over 50% above its pre-conflict level.

We think there is room for US equities to move higher by the end of the year, and big tech results last week confirmed sustained AI demand. But with the situation in the Middle East still fluid, and amid intensifying competition among AI participants and applications, we believe the next phase of market gains is likely to be characterized by a broadening of leadership beyond the megacaps. Investors should also consider opportunities beyond the US for diversification.

Solid US earnings growth points to a wider group of opportunities. Companies representing some 70% of the S&P 500 market capitalization have reported their first-quarter earnings, and around 80% of them are beating sales and earnings per share (EPS) estimates. The median EPS beat (at 5%) is better than the longer-term average since 2015, suggesting a broadening of profit growth. Additionally, the US manufacturing sector continued to expand in April, and consumer spending remains resilient. With overall guidance also pointing to solid earnings for the second quarter, we maintain our positive outlook for US equities and see appealing opportunities across financials, health care, industrials, utilities, and consumer discretionary.

Asia's resilience should continue amid strong earnings and appealing valuations. Asia Pacific has led the gains across global equities this year, with the MSCI Asia ex-Japan index rising 16% year to date. Absent a prolonged energy shock, we think this resilience can last. Structural forces like the AI boom continue to be a powerful growth engine for the region, and most Asian economies remain on a solid growth trajectory. The value-up initiatives across several markets should also be a tailwind. With accelerating earnings momentum and still deeply discounted valuations versus global equities, we continue to see a strong case for Asia Pacific markets, including China, Japan, South Korea, and Australia.

European markets can offer both resilience and growth opportunities. While we hold an overall Neutral stance on European equities, we see pockets of opportunities that should help investors navigate an uncertain environment. These include the health care sector and the Swiss market given their solid dividend yield and defensive characteristics. We also see value in industrials as the sector benefits from structural growth driven by reshoring, defense spending, the energy transition, and investment in AI data centers, while we believe consumer discretionary offers select opportunities amid appealing valuations.

So, while we maintain an Attractive view on US equities, we think investors should consider a diversified exposure both within and beyond the US market. Those willing and able to bear the risks associated with derivatives can also consider structured strategies to navigate potential volatility.