Financial markets: Analysis and convictions of CPRAM - July 2025

Malik Haddouk, Director of Diversified Management, and Juliette Cohen, Strategist, decipher the markets, and Julien Levy-Kern, Diversified Portfolio Manager, shares his convictions on the themes to follow.

New records for American indices during the month of June.

The reasons are clearly identified: a rapid improvement in macroeconomic sentiment aided by the de-escalation of the conflict in the Middle East, an anticipated decrease in interest rates in the US for the month of September, positive or "less bad" outcomes from discussions/negotiations between the US and the rest of the world regarding tariffs, a continuation of enthusiasm around developments in artificial intelligence, and an under-positioning of investors.

The MSCI World index rose by +4.32% in dollars for the month, driven by American markets which increased by more than 5% during the month.

Emerging markets and the Japanese Nikkei also showed significant increases of over 6% on average in local currency, while European markets ended in negative territory, weakened by geopolitical tensions.

On the bond side, nominal rates in the US and Europe moved in opposite directions. US nominal rates decreased by an average of -16 bps over the period regardless of the maturities concerned, while eurozone rates increased by +10 bps on average, except for Italian rates which remained stable. US 10-year rates ended at 4.23% and German 10-year rates at 2.61%.

Credit, for its part, performed well during the month due to the improvement in the international environment and the resilience of the global economy.

The greenback, on the other hand, continues to suffer and is experiencing a significant depreciation.

Even though the baseline scenario anticipates resilience in the global economy, the market has already priced in two rate cuts over the next six months and four in the coming year, which could once again support the expansion of multiples with valuations peaking at very high levels.

The markets have just concluded 6 tumultuous months during which the S&P 500 notably plunged by -19% from its peak to its trough before recovering its losses.

However, the recent rebound is not enough to reassure investors who cite a multitude of risks that equity markets may face.

The first concerns the imminent expiration of tariff agreements. The stakes are considerable because countries without agreements will be hit with tariffs much higher than the current level of 10%.

Questions regarding corporate earnings growth, U.S. debt, and the Federal Reserve's monetary policy also play a significant role in investors' considerations. The resilience of companies has been a key factor in the strong rebound of U.S. stocks since April. On average, analysts expect S&P 500 companies' earnings to grow by +7.1% this year before accelerating in 2026.

On the budgetary front, the United States could experience its Liz Truss moment of 2022 in the United Kingdom with uncontrolled spending and a certain questioning of the independence of the central bank, which could lead to a violent increase in long nominal rates.

Current valuations represent a brake on continued progress, even if some expect multiples to remain high due to future rate cuts and the resilience of technology stocks.

The American stock market has reached new historical highs driven by the momentum of mega caps, with the M7 gaining +6%, and the theme of Artificial Intelligence, up 8%. It is not the fundamentals that have allowed this rally, but the general sentiment that has shifted from fear of recession to FOMO. At 22 times earnings, the valuations of the S&P 500, and particularly those of AI beneficiaries, are returning to their peak.

Ultimately, the markets have absorbed but not forgotten the major geopolitical and budgetary shocks of the second quarter of 2025. These events have not halted the rise, but they remain latent risks. Moving away from the AI theme, we are indeed observing a defensive rotation. The gold theme remains in demand after an exceptional run, gaining another 5% over the month. The infrastructure themes are up 10%, as well as the themes of "blockchain" and cryptocurrencies, which are soaring by 20%. This rotation towards defensive assets suggests that investors are protecting themselves against macroeconomic risk. Our thematic basket "Evolution of Finance" partly allows exposure to these new safe havens.

Despite Europe's underperformance over the month, the themes of German budget spending and increased defense spending targets remain major supports. In view of the continued US rotation towards Europe, another potentially transformative theme for Europe could be the "European Savings and Investment Union."

Our key points

We note from this month of June the strong performance of equity markets outside of Europe and the return of the M7 theme. On the rates side, volatility remains prevalent as budgetary issues are at the forefront of current events with the vote on the BBB in the United States and announcements of investment in defense and infrastructure in Europe.