LGT Private Banking House View

May 2025 - in a nutshell

The trade conflict triggered by US President Donald Trump remains a significant risk for investors, as clearly reflected in market volatility. In particular, the relationship between the US and China, the world’s largest economies, is likely to remain extremely fragile.

  • Date
  • Author Gérald Moser, CIO & Head Investment Services Europe
  • Reading time 7 minutes

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In our current assessment, we expect a slowdown in US economic growth by 2025 with possible recessionary tendencies, despite a robust labour market. The euro area shows a similar growth profile with room for further interest rate cuts. In the bond segment, US Treasuries are stable but fraught with uncertainty due to fiscal policy. Against this backdrop, we prefer longer euro durations and are cautious with high-yield and emerging market bonds. 

Our equity strategy remains defensive, especially in the US and emerging markets. We have reclassified the healthcare, utilities, and cyclical consumer discretionary sectors. In the foreign exchange area, we expect a moderate appreciation of the US dollar against the euro and continue to see gold as an attractive diversification asset.

We hope that our analysis and assessments can provide support in your investment decisions in this persistently challenging market environment.

Macroeconomic environment

On 2nd April 2025, the US government imposed unprecedented tariffs, triggering a global trade war and economic shock, especially with China. Despite a temporary moratorium, tariffs remain high, fueling uncertainty and hurting global business sentiment. The US economy is showing signs of slowing, with risks of a deeper downturn if negative effects intensify. For now, macro indicators remain relatively stable, though growth is stagnating, and inflation is rising. Both the US and eurozone face stagflationary pressures, prompting expectations of interest rate cuts later in 2025.

Investment strategy

The US trade tariffs delivered a hefty blow to global supply chains and consequently causing headwinds and uncertainty, which will likely defer business investments until more clarity emerges. We do not view the current equity market pricing as appropriately reflecting these complications and uncertainties and have decided to confirm our current tactical "Underweight" in global equity, expressed in an "Underweight" in US and emerging market equity, below the strategic portfolio weight. Similarly, global high yield bonds and emerging market bonds are kept at "Underweight", leaving fixed income overall at "Underweight", while keeping a tactical "Overweight" in our cash position, above the strategic portfolio weight, to have flexibility in case opportunities arise.

Equity strategy

Since December 1991, the US S&P 500 has experienced a correction of more than 15% six times, with only three of these corrections accompanied by an economic recession in the US. Between February to April 2025, the S&P 500 now recorded another such correction. Based on a historical analysis distinguishing between "recessive" and "non-recessive" corrections, the following patterns emerge; in non-recessive corrections, US earnings per share increased in the following 12 months, whereas they fell significantly during recessive corrections. However, the price-earnings ratio (P/E) decreased in all corrections, regardless of a recession. Due to the ongoing uncertainty, we remain cautious and confirm an "Underweight" for equities, particularly in the US and emerging markets. In our sector strategy, we upgrade the recently penalised healthcare sector to "Attractive", while downgrading the utilities sector to "Neutral" after a phase of relative strength. Additionally, we downgrade the cyclical consumer discretionary sector to "Unattractive".

Fixed-income strategy

US Treasuries have stabilised after a period of selling pressure yet concerns about the sustainability of US fiscal policies are fueling fears of renewed market stress. This may prompt marginal shifts into euro government bonds, but not on a scale sufficient to displace US Treasuries as a global safe haven. As a result, we maintain a favourable view on government bonds with a marked preference for longer euro duration. Additionally, we remain cautious on global high-yield and emerging market bonds, given the economic disruptions and heightened uncertainty from recent US trade tariffs, which could hinder growth and delay corporate investment. Current corporate spreads do not sufficiently reflect these risks.

Currency and gold strategy

We anticipate moderate US dollar appreciation against the euro, driven primarily by sustained US inflation leading the Federal Reserve to maintain elevated interest rates until the second half of this year. This scenario reinforces yield advantages favouring the US dollar over the euro, with our EUR/USD target at 1.10 over the next six months. In contrast, the Swiss franc is expected to remain stable against the US dollar, supported by robust fundamentals, political stability, and its enduring status as a premier safe-haven currency, confirming our forecast of USD/CHF at 0.83. Gold remains a compelling diversification asset, with a new price target set at USD 3600.

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