US technology stocks are stagnating. However, continuous profit growth is making valuations more attractive. The ongoing earnings season could therefore inject fresh momentum into stock prices. At the same time, cyclical sectors are gaining tailwinds from promising economic data and loose financial conditions. However, sentiment is becoming increasingly euphoric, while the sharp rise in yields in Japan and the impressive rally in precious metals pose potential systemic risks.
Yields on US government bonds have been rising again since the start of the year. The reasons behind this are renewed verbal attacks by US President Donald Trump on Europe and strong economic data. Additionally, the US Supreme Court's decision regarding trade tariffs is pending, which could significantly increase pressure on the federal budget. While we generally find global government bonds attractive at current yield levels, we see more opportunities in emerging markets or Australia. For corporate bonds, we maintain our underweight position and prefer to take risks in equities and convertible bonds, where we see significantly greater upside potential. We also remain heavily underweight in CHF bonds, which we consider to be relatively unattractive.
In recent months, we have followed a barbell strategy focused on tech and pharma. We are now selling pharmaceutical stocks and instead buying global small caps. This move aims to capitalise on the momentum of the cyclical upswing. On the other hand, we are increasing our overweight in the IT sector. Since last October, IT has somewhat fallen out of focus and has been moving sideways. However, as the fundamentals remain very strong, valuations have significantly improved compared to the broader market (chart below). We are also making additional purchases in emerging market equities, which we believe show strong momentum. As a result, we are increasing our equity overweight to 3%.
Precious and industrial metals currently seem to be moving in only one direction: upwards. Now, natural gas prices have also surged due to the cold weather in the US. Given the risks to oil prices stemming from the massive protests in Iran, we no longer want to go against this momentum and are closing our underweight position. For gold, we remain overweight for the time being, although profit-taking is likely to increase as prices approach around $5,000 per ounce.
We have taken profits on listed real estate funds, which have now become very expensive and a strong consensus trade in Switzerland.
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