Summary

1. Unintended consequences – Since ancient Greece, economic warfare has more often than not missed its targets. It created unintended consequences and even elicited the exact opposite of what it meant to do in the first place. We lower our US GDP forecasts and now see a 25% chance for a US recession.
2. Bear market rallies are common – On average, they last 44 days and produce gains of 14%. They should not be mistaken as an “all clear signal”.
3. US equities: The market prices no cushion for a slowdown in growth and is back to expensive valuations. We reiterate our negative stance on US Equities and embrace the current strength as a chance for investors to trim positions.
4. Europe: The picture for European equities remains more constructive compared to the US. However, our negative view on US equities refrains us from too much short-term enthusiasm. We thus remain neutral and wait for a better entry point to increase our allocation in the region. Within Europe, our key conviction remains the UK.
5. Earnings Season: Corporate results are solid but likely supported by some stockpiling and frontloading before tariffs. Outlooks provide a less clear picture, blurred from uncertainty.
6. Sector view: Confidence is plummeting in the US and many economic agents are reviewing/ delaying their spending and investment plans. We thus downgrade US industrials from positive to neutral. No changes in Europe.

Summary

1. Nothing but a relief rally – D. Trump announced a 90 Day pause to retaliatory tariffs, which caused a huge relief rally. We don´t think this changed the overall picture and recommend to fade this rally!
2. Demolition Day – The tariffs outcome is clearly negative for growth on a global basis and even carries stagflationary elements for the US economy. As a result, we revise our long held positive stance on equites and downgrade our overall view from overweight to neutral.
3. US equities: We see further risks to EPS growth expectations, for Large and Small caps. We thus neutralize our preference for US SMIDs, making the equal weighted S&P our preferred US investment. More importantly though, we reduce our overall stance on US Equities from neutral to negative.
4. Europe: EPS growth in Europe is at risk, too. We see increasing spill over risks from slower global growth as the overall tariff rates have been above expectations. Europe trades at much lower valuations than US equities and positioning remains light. We thus reiterate our neutral view on the region. Within Europe, UK equities still look attractive. Beyond, we see room for domestic exposure to outperform.
5. At the sector level in the US, we downgrade both US Materials and US Financials from Positive to Neutral.
6. In Europe, we upgrade Utilities from Neutral to Positive, and we downgrade European Travel & Leisure from Neutral to Negative.