Fundamentally, this summer has been free of nasty surprises capable of derailing risk assets. The real bad news has been US tariffs on Switzerland and the renewed uncertainty due to French politics. Trump has stepped up his attacks on the Fed, but without any dramatic impacts on markets so far, probably as the Fed itself sounded more open to cutting rates, with inflation and employment data tending to back such a move.
Tariff discussions continued to dominate headlines, with the EU failing to impress but securing a “manageable” deal, particularly compared to Japan and Switzerland. The fragile truce between the US and China seems to be holding.
Consistent with the widespread frontrunning of tariffs and the resilient US economy, companies’ earnings have been mostly reassuring on both sides of the Atlantic, especially for US Big Techs. The Magnificent 7 are back to their relative peak and continued to report stratospheric figures. More importantly, corporates' guidance hasn’t triggered significant earnings cuts, although "uncertainty" is mentioned by companies at a record level. Stoxx 600 EPS for 2026 has barely been cut since the end of June, despite forex and tariff headwinds. The S&P 500 EPS for 2026 has been revised upwards by 1%.
From a market perspective US data tends to back the possibility of a rate cut in September, with a weakening labour market and contained inflationary impact from tariffs so far. This was confirmed by Jay Powell at the Jackson Hole summit. However, there was no shocking data to indicate a sharp weakening of the US economy. "Soft" best defines the picture.
Europe has been lagging, as the two largest equity markets (France and Germany) have been flat. German growth stocks have been pressured, and the incremental rally of German banking stocks wasn't enough to offset the decline. European Value has outperformed Growth by 5 percentage points so far this quarter, consistent with the upward pressure on long-duration bond yields.
It's interesting to note that Ukraine ceasefire talks a possible catalyst for renewed strength in Europe made little progress, although Putin and Trump met. Europeans managed to convince Trump not to give in too easily to Putin’s requests and secured some US backing for a European peace enforcement mission that could be deployed in Ukraine.
Along with the dollar consolidation, we have observed (at last) some better performance for global sectors in Europe, such as Luxury, Basic Resources, Healthcare, and Food & Beverage. Reassurances from companies about their capacity to deal with tariffs, as well as increased visibility on the latter, also helped.
In the very short term, the seasonal window for a correction in equities isn’t closed yet, especially after a price performance this summer that was significant compared to earnings revisions, notably within AI. Diversification remains a core theme, as we expect the dollar to resume its weakness from Q4 on the back of Trump’s policies. We are neutral on long-duration bonds due to a lack of alternatives, but would overweight cash.
Lastly, unless geopolitics unexpectedly derail fundamentals, we would expect another leg down in the oil price as oversupply should build up significantly from Q4. This could, on the other hand, ease the Fed’s job and support long duration.
Author:
Thomas Neuhold, CFA
Head of Austrian Equity Research, Head of Real Estate Research
Kepler Cheuvreux
2 September 2025
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Note
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