LGT Private Banking House View

July 2025 - in a nutshell

After the last few months were shaped by US tariff disruptions, driving volatility in global trade and economic growth, the latest escalation of the conflict between Israel and Iran with the direct involvement of the United States have shaken financial markets and rattled investors’ confidence. As the effects of geopolitics and the trade conflict unfold, we anticipate weaker US activity, declining import demand, and inflationary pressures in the months ahead. Against this backdrop, we recommend an overall "Neutral" equity positioning, balancing risks in a low-growth environment.

  • Date
  • Auteur Gérald Moser, CIO & Head Investment Services Europe
  • Temps de lecture 7 minutes

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In our view, US equities remain overvalued, prompting our "Underweight" stance, while emerging markets, supported by stronger fundamentals and lower trade risks, are upgraded to "Overweight." Sector-wise, we favour financials and real estate, while downgrading industrials to "Neutral."

In fixed income, the safe-haven status of US Treasuries is eroding due to rising debt and political uncertainty, driving upward pressure on yields. The US dollar faces medium-term headwinds, while gold remains a key diversifier amid geopolitical tensions and inflation risks.

As uncertainty persists, we are convinced that a disciplined, diversified approach is essential to navigate the evolving landscape. With our latest assessment we remain focused on helping our clients seize opportunities while managing risks.

Macroeconomic environment

Since the beginning of the year, the development in US tariff policy has caused significant disruptions in global trade, massively distorting the growth picture in the first half of 2025. The US economy lately appeared robust, supported by front-loaded investments and consumer spending - but this effect is now fading. For the remainder of the year, a decline in US import demand, weakening activity, and tariff-induced inflation risks are expected - the delayed consequences of the trade conflict.

Investment strategy

While the macroeconomic atmosphere in the first half of 2025 was driven predominantly by the trade conflict, leading to substantial US import gyrations, we expect the noise in the second half of the year to subside to some extent, although on a high level, and surrender to a low-growth backdrop with diverging inflation rates. For this next phase we believe that a "Neutral" equity positioning in the portfolio context, equal to the strategic weight, is preferred as risks appear more symmetric than previously despite a still elevated level of uncertainty. 

Equity strategy

Global equities rallied strongly over the past month, led predominantly by large AI-related stocks. Easing trade tensions and a stabilisation in earnings estimates were also supportive. However, geopolitical risks, including uncertainty around US trade deals and tensions in the Middle East, remain a concern for equity markets. US equities are particularly challenged, as stretched valuations do not compensate for the elevated risks and limit upside potential unless we see strong improvements in fundamentals, such as lower-than-expected rates or better-than-expected earnings growth. Consequently, we maintain our "Underweight" on US equities. Conversely, we upgrade Emerging Markets to "Overweight", supported by improving earnings trend, an attractive sector exposure (towards financials and IT), and lower risks from trade deals compared to other regions. To capitalise on recent gains, we are downgrading the cyclical and expensive industrial sector to "Neutral" and take profit after a strong outperformance. 

Fixed-income strategy

US government bonds are still an important point of reference in the global financial system, but their status as a safe haven is being increasingly called into question. Rising government debt, higher interest costs and political uncertainty are undermining investor confidence. Moody’s has already downgraded the USA’s credit rating, and international investors are becoming more cautious. We therefore anticipate upward pressure on the yields of longer-dated bonds, which may be partially offset by a shift towards domestic investors. Although US Treasuries retain their central role in the international financial system, their status as the ultimate safe haven has visibly lost its shine.

Currency and gold strategy

The US dollar’s support from high interest rates may stabilise the currency near current levels in the short term, but a gradual deterioration in institutional quality, foremost weaker governance, creates a medium-term headwind. Over time, these institutional headwinds are likely to push the greenback closer to its theoretical fair value of EUR/USD 1.20. Accordingly, we forecast EUR/USD at 1.17 in 12 months, balancing near-term yield support against medium-term structural vulnerabilities. Gold remains a diversifier amid geopolitical tensions and inflationary risk posed by US tariffs, underpinning our view that spot gold will advance to USD 3500 in six months and USD 3600 in twelve. Hence, we have moved gold to "attractive". 

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