 | Horacio Coutino, multi-asset strategist |
“In bull markets promises trade at a premium, but in bear markets reality trades at a discount.”— Veteran investor Jim Chanos, on 28th December, 2024.
We may be at an inflection point for US equities. July witnessed significant financial market volatility driven by headline risks from potential trade deals and tariff threats, with White House economic advisers constantly trying to reassure investors of successful US engagement with other trade partners. Despite having its first positive monthly performance in 2025, the dollar's performance continued to deviate from traditional expectations, reflecting concerns about the credibility of US institutions and the independence of the Fed. Nevertheless, equity markets remained largely upbeat in July, refusing to acknowledge the risk to companies from margin compression and other tariff-related risks.
This report will analyze:
- S&P500expectedearningsgrowthforQ2.
- Expectations for sectoral earnings growth rates andnet profit margins.
- Sector-specific monthly performance for US andEuropean equities.
- Points for investors’ considerations: challenges aheadfor US earnings.
Equity valuations remain a concern, with high valuations not necessarily reflecting the risk premia implied by forward-looking estimates.Furthermore, the continuing erosion of US exceptionalism, attempts at political interference against the Fed, and US economic deceleration may undermine the reliability of the ‘dollar smile’ framework, the theory that suggests that the dollar, as the world's reserve currency, tends to appreciate both when the US economy is weak (as investors take flight to quality) and when it is strong (as investors become more optimistic about US growth potential). This shift could lead to a future scenario where the US dollar depreciates during future risk-off episodes, contrary to the typical pattern predicted by the framework.
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