Barometer: Robust earnings growth to push equities higher

Equities should continue rising over the coming months because resilient economic conditions and exceptionally strong earnings growth outweigh the risks from higher bond yields and tighter liquidity.

• Pictet expects corporate profits to grow 35% this year, above the 30% consensus forecast, with AI adoption supporting earnings momentum.
• Economic conditions remain broadly supportive: US consumer spending growth has slowed to an annual 1.8% versus a 2.5% long-term rate, but capital investment is offsetting the weakness; China’s consumption and property market remain concerns.
• The preferred equity exposures are technology, industrials and financials, while utilities have been downgraded to neutral and consumer sectors remain underweight; mega-cap AI stocks represent 27% of global corporate earnings and 56% of earnings growth.
• Emerging-market equities excluding China are favoured, with exports growing at more than twice their pre-pandemic trend and Chinese imports rising 8.6% annually; Latin America is the cheapest region in Pictet’s valuation model.
• Pictet remains neutral on Treasuries, eurozone sovereign bonds and credit, but favours TIPS and emerging-market local-currency debt; US borrowing is running at 16% of GDP, while gold gained 9% in the month.

Takeaway: Maintain an overweight to equities and an underweight to cash, favouring emerging markets, technology, industrials and financials, while using TIPS, emerging-market local debt and gold to address inflation, fiscal and policy risks.