Equities

US equities caught up in the third quarter

Overall, the third quarter was a good one for equities. Almost all major equity regions posted gains, with US equities performing strongest, driven by the big AI winners. Asian equity markets followed in the performance rankings, while European equities recently stagnated. The strong euro, mixed economic data and political turmoil, such as in France, weighed on investor sentiment. Since the beginning of the year, however, European equities have continued to significantly outperform US equities in the single currency.

Mixed earnings revisions

In the wake of the strong Q2 reporting season, analysts have significantly raised their earnings estimates for the S&P 500. The consensus now expects earnings growth of 11% for this year and as much as 13% for next year. In addition to the significant depreciation of the US dollar this year, unabated growth in the AI sector has also helped. The weak US dollar has also helped emerging market equities. Earnings estimates have recently been revised upwards, particularly for Latin America. In contrast, the strong euro and uncertainty surrounding US tariffs have weighed on local exporters. In addition, there have been special issues such as weakening demand for luxury goods and sales problems at Novo Nordisk. Analysts now expect negative profit growth for Europe this year. For 2026, analysts again anticipate positive growth of 8%.

Market has already priced in Fed easing

Even though the US labour market has weakened recently and the Fed responded with its first interest rate cut in September, the US stock market is not pricing in an economic slowdown. On the contrary: the Fed's lower key interest rates are raising hopes of a significantly looser monetary policy and lower interest rates. For the stock markets, the medium and long end of the yield curve is particularly important. This is where companies typically borrow, and it is also where profit estimates are discounted in analysts' models. Given the still very high valuation levels for US stock indices, the market seems to be betting that this time long-term interest rates will also come down – and that bond yields will not rise, as they did after the Fed's last interest rate cut in 2024. However, whether this actually happens depends on how inflation figures develop. If they remain stubbornly high, interest rates are unlikely to fall, given the enormous level of global debt, meaning that a further expansion of valuations from here would not be justified, at least from a fundamental perspective. However, we cannot rule this out. This is because the increasing proportion of non-fundamental investors (eg ETF savings plans) is likely to continue to drive valuations upwards structurally. If global liquidity were to grow further as a result of the possible reintroduction of quantitative easing by central banks, we could see a significant overshoot in the stock market.

Asian emerging markets attractive as an addition to portfolios

Within the equity regions, we find the Asian emerging markets increasingly attractive. Apart from India, these are not only cheaper than US equities in particular but have also recently demonstrated relative strength. The Chinese government is also implementing targeted economic stimulus measures, easing monetary policy and promoting consumption and innovative industries. These measures have stabilised the Chinese equity markets in recent months and are creating investment opportunities, as many investors in the region are underinvested. However, reforms and infrastructure projects are also being pushed forward in many other Asian emerging markets, such as South Korea. This should ensure greater stability and growth prospects in the coming years.

From a seasonal perspective, the end of the year and the beginning of the new year promise a continuation of the positive stock market performance. This is due, among other things, to seasonally strong fund inflows and optimism for the new year.