ClockWise: Equity rally continues amid recovering macro outlook

Despite US tariffs remaining at their highest level since 1935, the economic impact has not been as negative (at least so far) as some feared.

Improving relations between the US and its trading partners seem to have eased concerns for businesses and consumers, compared to April. Inflationary pressures from tariffs have yet to materialise in a meaningful way, and oil prices have stabilised near multi-year lows, with OPEC+ ready to add further barrels to the market. All these factors have contributed to our Investment Clock moving into Recovery (Chart 1). This phase of the business cycle is where equities typically deliver their strongest returns.

Despite US tariffs remaining at their highest level since 1935, the economic impact has not been as negative (at least so far) as some feared.

Chart 1: Investment Clock in Recovery

Source: RLAM as at September 2025. Trail shows monthly readings based on global growth and inflation indicators; yellow dot is the most recent reading.

As the global economy continues to hold up, with economic data mostly surprising to the upside against pessimistic expectations following Liberation Day, global equities have continued to rally and outperform bonds by a significant margin (Chart 2). The MSCI All-Country World Index is now up 15% year-to-date in local currency terms, with the April drawdown firmly in the rearview mirror.

Chart 2: Global Stocks vs Bonds (6m change) and Economic Data Surprises

Source: Datastream, RLAM as at 22 September 2025.

With growth indicators painting a less negative picture than in the spring, the outlook for company earnings has also improved (Chart 3). Analysts have been revising higher their EPS expectations for global equities, with US stocks seeing the strongest revisions. The most recent earnings season continued to show the dominance of megacaps and the tech sector, which accounted for 90% of headline earnings growth for the US market. There are some signs of exuberance building. AI-related developments continue to be seen positively by investors, with Oracle surging by over 35% in a day following a strong outlook for its cloud infrastructure business. Meanwhile, Intel experienced its best daily performance since 1987, rising more than 20% on the back of Nvidia’s plans for investment and collaboration. Equity prices can continue to rise if earnings growth remains strong, even at current lofty valuations; but there are clearly risks that, at some point in the future, the earnings potential of AI and tech companies will be questioned.

Analysts have been revising higher their EPS expectations for global equities, with US stocks seeing the strongest revisions.

Chart 3: RLAM Global Growth Scorecard and EPS Revisions

Source: LSEG Datastream, RLAM as at 18 September 2025.

While a good portion of the incoming data has been encouraging, there is a potential trouble spot: the US labour market. Recent months have seen significant downside revisions to payrolls data, raising questions about the resilience of the US consumer. The key risk now is whether recent softness will turn into outright job losses.

So far, slowing demand for labour seems to have been offset by reduced labour supply (likely reflecting changes in immigration policy), which has kept the unemployment rate steady. However, if job cuts emerge in an environment of slow hiring, as Federal Reserve (Fed) Chair Powell has warned, the unemployment rate could rise markedly. This could trigger a recession, which would likely lead to a sell-off in equity markets, and push the Investment Clock back into the ‘Reflation’ quadrant. Conversely, if the labour market stabilises, market expectations for Fed policy may prove too dovish, and rate cut pricing could need to readjust. We will continue to follow the developments closely, ready to react as and when opportunities arise.

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