Welcome to this month’s edition of the True Potential monthly report.
In this update, we look at what’s been happening in global markets and the wider economic outlook, and what it could mean for investors.
Here are the key themes this month:
- Financial markets, corporate results and consumer spending all remain strong.
- The outlook for the US economy is positive. Concerns around tariffs are easing as investors digest solid third-quarter results and look ahead to further rate cuts and higher government spending.
- Lower prices, rate cuts and fiscal stimulus should help keep European growth positive too.
- Investors continue to have confidence in the resilience and innovative strength of US companies. While equity valuations are generally high, there are still areas of good value.
- We continue to favour equities over bonds. Within equities, we prefer non-US stocks. In fixed income, we still see some value in UK gilts, which remain more attractive than US Treasuries.
Market overview
With equity markets still near record highs, investor confidence remains firm. So far, tariffs have had only a limited impact on consumer prices, allowing consumer spending to stay healthy. Third-quarter company results have been strong and highlight businesses’ ability to innovate, protect margins and adapt their supply chains. We still expect tariffs to have a modest effect on economic activity, but markets appear to be taking this in their stride.
US outlook
The outlook for US growth in 2026 remains strong. The effects of trade policy are being offset by exceptional levels of investment in Artificial Intelligence, strong productivity trends and solid corporate earnings.
Easier financial conditions, lower interest rates and the administration’s spending plans provide further support.
Europe outlook
The prospects for European growth have also improved. Lower energy prices, an oversupply of Chinese goods, reduced interest rates and increased government spending are helping to counter the impact of US tariffs. Following rate cuts over the summer, the European Central Bank’s benchmark rate is now more than two percentage points below where it stood a year ago.
Equities and valuations
Equity valuations appear expensive in some areas, but there are meaningful differences between regions and within individual markets – particularly in the US. Major non-US markets currently offer better value, although US earnings have repeatedly proven stronger than expected. Investors continue to believe in US companies’ ability to adapt and innovate.
Our positioning
We remain modestly overweight in equities, with a tilt towards non-US stocks. At the same time, we are mindful that companies will need to deliver earnings that justify today’s valuations. Government and corporate bonds offer limited value at present; within fixed income, UK gilts remain more appealing than US Treasuries, even considering the UK’s fiscal position. In alternatives, careful selection is essential given the risks of higher short-term inflation and larger fiscal deficits, so we maintain a neutral stance. We prefer to be underweight in cash.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest.
This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
Opinions, interpretations and conclusions represent the views of True Potential Investments at the date of publication and are subject to change. Forecasts are not a reliable indicator of future results.
All data sourced from Bloomberg L.P. (02/12/2025)
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