Update Equity: Markets take a breather
Equity markets were on fire at the beginning of the week, after a weekend agreement was announced by the US and China to significantly lower trade tariffs between them -- at least for a 90 day period.
That doesn’t mean equity markets can move on from here though. Substantial tariffs remain in place and US trade policy will likely remain volatile. It is therefore clear that investors still need to navigate an uncertain economic environment. After a strong start of the week, equity markets took a breather later in the week. But there was no lack of news flow.
Relatively soft US inflation data did not move equity markets. With no clarity regarding the effect that trade tariffs might have on inflation, the Federal Reserve is likely to keep interest rates on hold. Companies are hesitant to present financial forecasts as well. And in this environment, there is a keen eye for costs. Microsoft, CrowdStrike and Burberry, for example, recently announced significant workforce reductions. After an equity bull market since Trump’s initial tariff announcement in early April (Liberation Day), we made the decision to move from a moderate overweight equity position to a more neutral one. In terms of regions, a neutral allocation is preferred as well. Within sectors, the health care and financials sectors remain on a moderate overweight, while we are less constructive on the consumer staples and materials sectors.
While the end of the earnings season is approaching, it is not over yet. IT company Cisco delivered a good quarter and presented a solid financial outlook for the current period. Sentiment in the tech sector has been further boosted by the recent strong numbers from Microsoft. And the share prices of chip producers Nvidia and AMD have been moving up as well. This is related to these companies striking deals with Saudi Arabia during President Trump’s visit there; and by AMD’s plan to launch a stock repurchase plan.
The health care sector remains in the spotlight. Trump’s most recent executive order on drug prices is keeping investors confused regarding the potential impact of Trump policies on a company-specific level and is a cloud hanging above the sector. Meanwhile, managed-care company UnitedHealth withdrew its financial guidance for 2025 and replaced its current CEO with their predecessor, resulting in the share price again declining. Finally, telecom provider Deutsche Telekom raised its earnings guidance for the full year after a strong performance in the latest quarter, especially in the German market.