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: Dr. 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 USD 120 to around USD 70, returning to roughly its pre‑war level. As a result, inflation expectations in Europe and the US have collapsed. The inflation rate priced into one‑year US 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 raise rates. The decline in yields in recent weeks is therefore likely to continue and we are increasing our overweight in global government bonds.
Equities: Preference for cyclical exposure
Earnings growth for the upcoming reporting season is expected by the market to be robust; forecasts are +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, sentiment is no longer euphoric and our technical indicators are no longer generating sell signals. Given that macro data are also strong and inflation fears have faded, 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 defensive UK equity market, as its high share of energy stocks is likely to come under selling pressure in an environment of sharply falling oil prices. By contrast, the outlook for eurozone (EMU) equities is improving, as easing inflationary pressure could prompt the European Central Bank to reassess its restrictive stance. A resulting short‑term weakening of the euro could also provide additional tailwinds for European export names.
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 and commodities for several months now, and this has paid off. Precious metals and oil in particular have suffered steep losses and, in our view, are in a downtrend. While we are structurally positive on gold, we see technical risks, after not only the 200‑day moving average but also the USD 4,000 mark were temporarily breached. The oil price could fall further; agricultural prices, by contrast, are likely to rise due to extreme drought. We therefore remain neutrally weighted in commodities.
EUR Asset Allocation Update in July 2026
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