It is worth staying invested

Until now. However, the data remains solid and support the risky assets, observes Sonja Laud, CIO at Legal & General Investment Management. However,

Despite the uncertainties about the announcements concerning customs duties. Furthermore, the second semester started well in the markets with the approach of the start of the season of publication of the results at the end of June. Furthermore, What aspects should be attentive in particular during the second half of the year? However, Update with Sonja Laud, Director of Investments (CIO) at Legal & General Investment Management.

Given the current uncertainties -trade war. Furthermore, conjuncture, increase in oil prices and inflation in particular -what do you expect from the Fed will do during the second half?

The Fed will take up above all what we call the “concrete data”. Similarly, or “hard it worth staying invested data” in English, that is to say tangible economic data. For example, The federal reserve will wait for these indicators to show signs of weakness in the event of growth. Moreover, or persistence with regard to inflation, before acting. For example, Until now. Consequently, the effects of customs duties have only been felt moderately, even if the data will have been strongly distorted by anticipations before the date of entry into force which had been announced for April 2. Moreover, In particular, inflation data has not changed much since then. Furthermore, The growth. Consequently, inflation forecasts remain biased downwards and upwards for the second half of this year, and the markets await the end of the price break in July to see if a new softening of the global customs duties will be implemented.

For the Fed. Therefore, investors, this means that it will be necessary to find a balance it worth staying invested between the most pessimistic scenario – namely the application of all remaining customs rights as announced – and the most optimistic scenario – namely the lack of customs duties. However, Between these two extremes. In addition, there is a large area of uncertainty, and this even before taking into account the current geopolitical context.

The main impact of customs duties on the economy can already be modeled. Similarly, but to understand all the repercussions, it is necessary to estimate the impact of the so-called secondary effects, that is to say the extent to which uncertainty will affect economic activity, in particular consumers and companies that suspend their major investment projects, both in terms of businesses and individuals. For example, These indirect effects could have even greater consequences than the direct effects of customs duties.

“Current market anticipations, which are counting on two rate drops this year on the Fed it worth staying invested side, seem justified.”

The markets are still counting on two drops in 2025. In addition, even if the last Fed meeting has proven to be more nuanced and some FOMC members opted for the status quo this year. Therefore, This reflects the level of uncertainty that emerges from current data. Meanwhile, We believe that it will be difficult for the Fed to justify rate reductions if growth is maintained as it provides. Nevertheless, if underlying inflation exceeds 3%. In addition, Our opinion therefore remains downward oriented. Moreover, we believe that current market anticipations, which are counting on two decreases this year, seem justified.

Is the first drop in rates from the Fed share favorable to equity markets?

It is always a question of evaluating what the market has already integrated preliminary. Regarding the stock markets, we believe that they are already relatively complacent. Since mid-April. we have been witnessing it worth staying invested a recovery that does not really go hand in hand with the planned risk scenario, namely lower growth prospects and higher inflation. Until now, the data remains solid and support risky assets.

If we leave from April 2, more than three months, we arrive at the beginning of July. Will the subject of trade war focus again on the attention of markets. or other themes will also influence the markets?

It is very difficult to say, because the 90 -day period is not binding. The market will continue to react very much to any announcement of the White House. This is why diversification is very important to us. Until now, everything indicates that countries have been able to negotiate agreements and lighten the overall tariff load. Europe is the only large region where no agreement has been reached. There is no doubt that customs duties will remain an important it worth staying invested subject for the markets. but the increasingly difficult geopolitical situation will also influence market discourse. The rise in oil prices fueled by the crisis in the Middle East could also influence inflationary data.

“So far. European markets have performed very well, but Europe is of course just as vulnerable to a new escalation in the pricing conflict.”

Should investors stay away from the markets during the summer or keep their positions?

We believe that it is better to remain invested. but we advise investors to review their global allowance between the different asset classes and the expected risk/yield profile. In other words, investors must ask themselves what regional allocation they wish. They must also ask themselves how to manage the risk of concentration in the United States. the risk of global concentration. If you have a portfolio of world capitalizations. you are very “long” on American and very it worth staying invested “long” assets on technological companies. The first step is to understand and analyze the distribution of risks in your own portfolio. The risk of concentration is certainly a major concern for almost all investors, as is the possibility of reducing it. Additionally, The first seven American shares have significantly underperformed the 493 other S&P 500 actions since the start of the year. and even a simple investment in the S&P 500 weighted in an equal manner would have given an investor an adjusted result at the risk better than that obtained by investing in “seven magnificent”.

We also recommend geographically diversifying. Due to uncertainty, it is really a question of further diversifying portfolios.

Since the beginning of the year. European shares, such as the Dax (+21% since the beginning of January), have significantly outperformed American actions. Can this trend continue until the end of the year or do you it worth staying invested plan a correction of European actions?

Europe has experienced a positive development and market dynamics is favorable to it. The feeling of investors with regard to Europe was however so negative until the end of 2024 that it. did not take much for a slightly more positive feeling to settle in Europe. And this, even if the euro zone is not really attractive in terms of growth prospects.

Then there were the German elections in February. followed by the announcement of a major investment program in infrastructure and defense. This defense pact and the possibility of increased cooperation in Europe had a great influence on the feeling of investors. All of these announcements have been positive. This is an investment program that will have a potential long -term impact on economic growth.

“A withdrawal from the United States from the multilateral. liberal world based on the idea of free it worth staying invested trade would have significant long-term consequences, and this explains the current trend for diversification outside the assets denominated in US dollars.”

There was also a valuation gap with the American markets. The change of feeling. induced by the factors that I have just mentioned, gave rise to a new dynamic on the European equity market. So far. European markets have performed very well, but Europe is of course just as vulnerable to a new climbing in the conflict about customs duties.

If we consider the longer term trends. given the way in which Donald Trump used his executive powers and in which the current American administration even treats its most important business partners, it is quite possible that we are witnessing a change in perception of “American exceptionalism”. This does not mean that the United States loses its strength of innovation in the technological field. in other fields, but it it worth staying invested indicates that global investors reconsider the overall role of the United States in the world. A withdrawal from the United States from the multilateral. liberal world based on the idea of free trade would have significant long-term consequences and explains the current trend for diversification outside the assets denominated in US dollars.

Are there currently sectors, or perhaps themes or asset classes, which you would avoid or, on the contrary, would favor?

In terms of diversification, we would avoid concentrating the risks too much. I do not think that investors are remunerated for the risk they take by investing in a small number of shares considered so far as dynamic. such as the “seven magnificent”.
For the moment, we favor markets outside the United States. This does not mean that we have no American action in the portfolio. But, as I said, we avoid the risk of concentration.

“With regard to business profitability, Japan is on the right track.”

We have been cautious for some time with regard to the highest quality companies’ obligations (“Investment Grade” level obligations). because the spreats were very low. We believe that the risk of decline has increased considerably in the event of deterioration of the economic situation.

On the other hand, we are positive in the bond markets outside the United States. What I said about the levels of valuation of the shares also applies to obligations. in particular those of quality “investment grade”.

We have already talked about Europe and the United States. What do you think of Asia at the moment?

Japan is a country that we closely monitor. Again, we are fully aware that customs duties can have a negative impact on the economic development of Asia. It seems that Japan is completely ready to find common ground with it worth staying invested the United States.

Regarding business profitability, Japan is on the right track. In addition. the macroeconomic fundamentals have improved, inflation having finally normalized, which allowed the Bank of Japan to get out of the zero interest rate regime in force for so long.

China. which was at the heart of the tariff conflict, has found a fragile truce with the United States and recent economic data, such as domestic consumption, is encouraging. This will help create a more constructive context for the overall development of Asia.
We appreciate the obligations of emerging markets, because they offer an interesting risk/yield profile in the current context. The increase in yields and the positive impact of a lower dollar are favorable to this asset class.