Views on US equity strategy by Mathieu Racheter, Head of Equity Strategy Research, Julius Baer
Below the Views on US equity strategy by Mathieu Racheter, Head of Equity Strategy Research, Julius Baer
Recent market volatility reflects sentiment shifts around AI-related valuations rather than a deterioration in fundamentals. Earnings momentum remains positive, and as long as profits continue to trend higher, elevated valuations are unlikely to trigger a sustained downturn. Pullbacks should be viewed as opportunities to add to long-term equity themes.
Equities continue to navigate a familiar tension between strong underlying trends and recurring bouts of valuation anxiety. After a year in which AI-linked companies and semiconductor names led the market higher, questions among investors are resurfacing on whether the scale of capital expenditure being deployed today will translate into the earnings growth embedded in current valuations. This hesitation has prompted a wave of profit-taking, particularly in the most crowded areas of the market. However, volatility rooted in sentiment does not necessarily imply a break in the underlying market trend. Historically, elevated valuation multiples translate into sustained downside only when earnings momentum stalls. That is not the situation at present. Corporate guidance through the latest reporting season has remained constructive and earnings growth is still expanding across all sectors, driven by technology stocks. In this context, the current episode looks more like a consolidation phase following strong gains rather than the start of a cyclical downturn. Corrections of 5%–10% are common features of rising markets, often serving to rebalance positioning and broaden market participation. Should earnings delivery remain on track, stretched valuations can be absorbed through continued profit growth rather than price compression. For investors, the message is consistent: rather than reacting to headline-driven volatility, focus on earnings revisions and the extent to which AI-related investments translate into tangible returns. Periods of weakness should be seen as opportunities to accumulate long-term structural winners, not signals to step aside.
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