Investors seem increasingly convinced that President Tump’s tariffs will exert minimal influence on global markets. This more positive sentiment, alongside central bank rate cuts, has propelled many markets to record highs this year. Leadership has been considerably more balanced, with emerging markets staging an impressive comeback and Europe maintaining its strong performance. Yet, this favourable environment is not without uncertainties. French politics are creating cause for concern, as is gold's significant price appreciation and assets are increasingly expensive. While we acknowledge pockets of exuberance, we see an underlying logic driving valuations. A true bubble tends to disconnect from logic – a threshold that we believe has not yet been crossed.
Read more: Fed rate cuts, AI spending signal market resilience
Rational exuberance
We see five reasons to remain invested in global markets:
1. The prospect of further Fed cuts
2. Significant capital expenditure
3. The wealth effect derived from strong market performance
4. Positive earnings prospects for 2026
5. The positive impact of the Big Beautiful Bill on US corporates.
These reasons help to explain the ‘buy the dip’ attitude among investors. Fears of resembling the ‘irrational exuberance’ of the late 1990s are largely dispelled by solid earnings, and the de-anchoring between equity prices and fundamentals has only just begun. This early phase may show exuberance, but it remains rationally tied to the remarkable progression of profits despite ongoing uncertainty.
What French politics mean to markets
The political situation in France remains concerning, amid President Macron’s struggle to keep a government in place. This instability comes at a time when profound reform of government spending is needed and the economic consequences are naturally negative. The lack of reform affects the medium-to-long-term growth prospects of the country, further deteriorating the state's ability to collect future taxes, while political uncertainty limits investment. In market terms, the consequences differ for sovereign and corporate bonds.
For sovereigns, France's spread to Germany stands above the levels of past decades, making public debt more costly (Figure 1). In contrast, French corporates generally demonstrate strong governance, which partially offsets the country risk created by the French political situation. Additionally, financial institutions hold diversified sovereign exposure, thereby avoiding overexposure to French government bonds. As a result, there has been limited contagion from French sovereign spreads to French corporate credit spreads.
FIG 1. Evolution of 10-year French sovereign spreads to Germany and comparison of corporate and government French bond spreads1
Read more: French sovereign risk: what markets are really telling us
Understanding the gold rally and its risks
Gold is reaching ever higher valuations against the US dollar. These gains have been attributed to the high level of uncertainty in 2025, yet this ‘safe haven’ argument is countered by the strong progress of equities this year. Gold has also benefited from large purchases by central banks, but such buying programmes are not new and haven’t produced a similar impact on gold prices in other years. However, the rise of gold as a dollar debasement trade does reflect rising mistrust in the greenback. There are different reasons for this, including elevated US inflation, the White House challenging the Fed's independence, and the Fed appearing ready to cut rates despite inflation. It is this final explanation that seems the most reasonable. Gold’s now expensive valuation could make it vulnerable to a dollar upswing, and using gold as an equity diversifier could prove disappointing.
Read more: All the President’s tariffs: will they impact markets in Q3?
Our positioning across asset classes
Right now, our investment teams do not see a case for bearishness: the investment environment remains benign, with inflation outside of the US notably lower, the global economy remains resilient, and a few more interest rate cuts are expected from G10 central banks. The valuation argument is a source of concern, particularly for US equities, but is not considered a cause for alarm just now.
Multi asset. The All Roads team remains neutral, with market exposure being maintained around 139%, with its allocation to protection and cyclical assets shifting slightly to 57% and 43% respectively (rebased to 100%).
Fixed income. Our Global Fixed Income team is underweight sovereigns, holding a preference for Treasury Inflation-Protected Securities (TIPS) over nominal US Treasuries, and is overweight emerging market (EM) hard currency debt. Within credit, exposure to investment grade and high yield (HY) ie neutral, with a defensive and selective tilt. Our Asia Fixed Income team favours defensive HY and is overweight India, commodities, insurance and emerging market HY sovereigns.
Convertible bonds. The team is positive on the US and Japan, and neutral on Europe. They are constructive on equities globally, focusing key themes such as AI – albeit with a defensive tilt that favours Asia AI; US exposure to onshoring and other strategic activities; and European exporters. An exposure to gold is maintained as a hedge.
Equities. Our Global Equities team is overweight Emerging Markets at the expense of US. In terms of sectors, it remains overweight technology, media and telecoms, financials and consumer discretionary, and has raised its allocation to European luxury stocks. Our Swiss Equities team is overweight communication services, financials, healthcare and industrials, and underweight consumer discretionary, materials, real estate and utilities. The Asia Equities team remains overweight China and Hong Kong, and has shifted to an underweight India position.
