Asset allocation: optimism prevails into year-end
As a turbulent year draws to a close, optimism is in the air for equity markets. Liquidity conditions are very supportive, economic conditions are improving, and corporate earnings remain strong. Add in favourable seasonality – stocks’ tendency to rally in the fourth quarter – and we see enough positive signals to retain our overweight on global equities through the final weeks of 2025.

Still, risky assets offer unusually small premia over safe ones and valuations are elevated, which means equities do not have much of a cushion against shocks. In other words, it pays to be selective, both within equities and other asset classes.

So while we remain overweight equities, we are more enthusiastic about emerging markets than US stocks. We also downgrade US Treasuries to underweight as yields look to have fallen too far. With headline inflation hovering near 3%, we believe markets may have overestimated the likely extent of interest rate cuts from the US Federal Reserve. At the same time, the potential for stronger-than-expected growth could push US yields back up. 

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