Cyclical exposure in the circular economy
Economic data continue to surprise to the upside in many regions and cyclical equities are gaining momentum. Industrial companies operating in the circular economy in particular look attractive.
Asset Allocation Update: Let's get cyclical, cyclical …
In contrast to the current weather, equity markets cooled somewhat in June due to concerns about interest rates. Despite robust macro data, we still do not expect the US Federal Reserve (Fed) to raise rates and are therefore increasing our allocation to cyclical equities.
Author: Roger Rüegg
What adjustments have we made to the portfolios?
Bonds: Inflation fears have already faded again
Although it remains unclear whether the Strait of Hormuz is currently open or not, the price of Brent crude has already fallen significantly from its March high of USD 120 to just over USD 70, returning to roughly its pre‑war level. As a result, US inflation expectations have collapsed. The inflation rate priced into one‑year TIPS has dropped from over 5% to below 2%. Longer‑term inflation expectations have also fallen, to which the "hawkish" stance of the new Fed Chair, Kevin Warsh, has likely contributed. Contrary to market pricing, however, we still do not expect the Fed to hike rates. The recent decline in USD bond yields is therefore likely to continue. Accordingly, we are increasing our global overweight in bonds, as the same trend is likely to materialise in the other major currencies, with the exception of JPY.
Equities: Preference for cyclical exposure
Earnings growth for the upcoming reporting season is expected to be robust, with consensus forecasts of +27% year‑on‑year in the US and +12% in the eurozone. Price momentum also remains strong. However, as equity markets cooled somewhat in June – with losses of around 2%, the second negative month this year – sentiment is no longer euphoric and our technical indicators no longer generate sell signals. In addition, the economic backdrop is gaining traction. In the US, rising equity markets support household wealth, which in turn underpins consumption. In Europe, there is potential in a reduction of the elevated savings rate. Moreover, inflation fears have faded. As a consequence, we are again increasing our equity overweight for July, which is typically a strong month. Alongside our tech exposure, we continue to favour cyclical equities such as small caps and industrials (see chart). We are now underweight in the two defensive equity regions, the UK and Switzerland. Swiss equities in particular performed well in June, but are likely to give back this outperformance.
Chart: Cyclicals gaining momentum on the back of a favourable macro environment
Alternative investments: Despite heavy losses, still not the time to re‑enter
We have been staying on the sidelines in gold, commodities and real estate for several months now. Precious metals and oil in particular have suffered steep losses and, in our view, are in a downtrend. While we remain structurally positive on gold, we see technical risks, after both the 200‑day moving average and the USD 4,000 mark were temporarily breached. The temporary strength of the USD is also likely to weigh on the metal. The oil price could fall further, while agricultural prices are likely to rise due to extreme drought. We therefore maintain a neutral weighting in commodities. Real estate funds are no longer as expensive as they were, and recent cantonal votes on housing have eased some concerns. However, in our view there is currently a lack of momentum in this segment.
Asset Allocation Update in July 2026
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