Lombard Odier Raises US Stock Allocation Amid Resilient Growth and Strong Earnings
Lombard Odier economists report global economic stability, increasing US equity weights, and upgrading the US dollar outlook amid strong corporate earnings and resilient growth.
The global economy maintains stability despite high energy prices and elevated bond yields, according to a recent review by Lombard Odier economists. In the United States, consumer spending continues to grow, the labor market remains resilient, and investments are strong.
While expensive oil increases short-term inflationary pressures, its impact on growth is expected to remain limited. High yields enhance the attractiveness of bonds through current income and potential capital gains if yields decline. Government bond prices appear undervalued relative to economic conditions.
Dr. Luca Bindelli, head of investment strategy at the Swiss bank, explains that US interest rates are projected to rise less than market expectations. The bank favors US bonds maturing in five to seven years and maintains a preference for emerging market bonds denominated in currencies such as the US dollar. In corporate bonds, the stance remains neutral due to narrow yield spreads over government debt.
Corporate Earnings and Equity Markets
The stock market can absorb moderate interest rate hikes, with corporate profits acting as a primary driver of returns. Ahead of third-quarter earnings reports, US profit forecasts for 2026 and 2027 are being revised upward across multiple sectors.
Alongside technology and energy, improvements are recorded in healthcare, industrials, and public utilities. Meanwhile, price-to-earnings multiples have declined, including in technology and AI stocks despite robust earnings. The US stock market trades at a forward P/E multiple of 19, below recent historical averages, offering an attractive entry point.
Strategic Portfolio Adjustments
Bindelli notes that equity weightings in US stocks have been increased due to resilient consumption, AI investments, and faster earnings growth relative to other markets. Preferred allocations include developed and emerging market equities, alongside exposure to Japan and small-cap companies. Conversely, euro zone equity weightings were reduced due to political and budgetary risks.
The relative strength of the US economy and growing real yield differentials are expected to strengthen the US dollar. Consequently, the stance on the dollar against developed currencies has shifted from neutral to positive, while emerging market currencies moved to neutral following strong performances.
