Market Pulse September

Equities should continue to rise as resilient growth and strong earnings outweigh near-term risks, but diversified portfolios should use fixed income, alternatives and risk-buffering strategies to manage potential volatility.

• Global growth has proved resilient because consumer spending remains healthy, AI infrastructure investment is robust and oil demand is more flexible than expected; GDP growth is expected to re-accelerate in 2027, reaching 1.2% in Europe and Japan and 2.1% in the US.
• US core PCE inflation is expected to fall near 2% in 2027 as temporary effects from tariffs, AI shortages, energy-price pass-through and portfolio fees fade, while wage and housing pressures remain subdued.
• The Fed’s reaction function is becoming less predictable as inflation and labor data soften while market pricing turns more hawkish; the ECB is expected to hike in September and then hold at 2.5%, while the BoJ may raise rates twice more in 2027.
• Goldman Sachs Asset Management remains overweight equities, citing consensus 2026 EPS-growth expectations of 31% in the US, 17% in Europe, 18% in Japan and more than 70% in emerging markets, while warning that high expectations, AI surprises and elections could increase volatility.
• In fixed income, the focus is on carry in higher-quality and core bonds, neutral duration and selective corporate credit because spreads are tight; TIPS are presented as a hedge against US inflation tail risk.
• Alternatives such as hedge funds, private infrastructure, real estate and growth equity may improve diversification, with AI investment supporting data centers and power generation; more than 90% of portfolio-return variation is attributed to asset allocation.

Takeaway: Investors should remain constructively exposed to equities but broaden portfolios beyond a traditional 60/40 mix, using high-quality carry, inflation protection, alternatives and buffer or option strategies while recognizing that elevated valuations and political, geopolitical and rate risks can generate pullbacks.