Global Equity portfolio outlook, positioning, and attribution as of 06/30/2025

June 30, 2025

Outlook:

• We continue to see late-cycle economic conditions in the U.S. with an ongoing deceleration in activity, but we also see a path to an extension of the cycle as the economy acclimates to uncertainty and the policy focus shifts toward more stimulative measures like tax cuts and deregulation.
• Protectionist trade policy, cuts to government spending and jobs, diminished private sector hiring, and slower household wealth gains leading to a higher savings rate all have the potential to weigh on U.S. economic growth this year, in our view, but with stabilizing sentiment and markets, healthy household and business balance sheets could allow for the use of credit and re-leveraging to drive continued spending and business investment.
• With the Federal Reserve on a path toward policy recalibration, we believe the yield curve re-steepening process can continue, as resilient economic growth in the intermediate term and gradual disinflation could limit the downside to longer-term interest rates.
• We see earnings growth as a primary driver of potential positive U.S. equity returns this year, driven in part by potential productivity gains from factors including ongoing AI investment, while a steepening yield curve and weakening sentiment could weigh on equity valuations.
• Internationally, most major economies still face late-cycle challenges, in addition to risks from U.S. trade policy.
• We have seen, however, signs of improvement in Asia, and particularly EM Asia, such as a stabilizing credit and property market backdrop in China, a pivot to more stimulative monetary policy among the region’s central banks, and renewed growth in high-tech manufacturing.

Portfolio Positioning:

• In our view, the evolving late-cycle economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
• We are avoiding most cyclical early-phase U.S. sectors, but retain exposure to Financials, which could benefit from a steeper yield curve and an extension of the cycle, and mid-phase U.S. sectors for their select economic sensitivity and positive secular tailwinds.
• We are overweight late-phase, defensive U.S. sectors like Health Care and Consumer Staples, which we expect can outperform as growth slows.
• We remain underweight international equities, overall, but have shifted to an overweight of EM Asia, amid signs of economic improvement, and a reduced overweight of Developed Asia.

Q2 Attribution