Equity assets: avoid concentrations and keep cash reserves in case of corrections

After the sharp market rally, a diversified approach is essential, avoiding excessive concentration and maintaining a cash reserve in the event of potential market corrections.

by Andrea Scauri, manager of the Lemanik High Growth equity fund
Global equity markets ended October higher, supported by a combination of favourable macroeconomic data, signs of easing on tariffs and positive corporate results that came in above expectations in the United States (S&P 500 third-quarter EPS growth currently at +9% versus the +8% forecast at the end of the quarter). In Europe too, third-quarter EPS growth has so far been slightly better than expected, with average earnings growth for the Stoxx600 of +2% year on year (versus -2% expected), although the improvement is concentrated in the technology and telecommunications sectors, while industrials are weighing on performance.
Major US technology companies (Alphabet, Meta) continue to significantly increase investment in artificial intelligence and data centres (Alphabet raised its 2025 capital expenditure guidance to $91-93 billion, Meta from $66-72 billion to $70-72 billion and expects growth to be "significantly higher" in 2026). The Fed announced the end of quantitative tightening as of 1 December and cut rates by 25 bp (rates -5/-15 bp over the month in the US/EU). The meeting between Trump and Xi in South Korea led to a one-year trade truce until November 2026. The United States will reduce Fentanyl tariffs from 20% to 10%, while China will remove retaliatory tariffs on certain agricultural products and delay export controls on rare earths.
The commodities index rose over the month (+2%). Gold rose by +4% to just above $4,000 an ounce, after having surpassed $4,300, then cooled as signs of trade tensions between the United States and China over tariffs and a climate of risk appetite emerged. Geopolitical tensions, especially the debate over guarantees linked to the issuance of EU bonds to finance Ukraine using frozen Russian reserves, explain the growing demand from central banks for this asset class. Copper rose (+6% to $11,000 per tonne) because of strong supply-side tensions due to accidents and disruptions at major mines around the world. Oil showed strong volatility in the $60 to $67 per barrel range, ending the month slightly lower on fears of oversupply. The decision by Opec+ to gradually increase production and the IEA estimates pointing to a surplus of up to 4 million barrels a day in 2026 have put pressure on prices. Prices were also hit by a decline in geopolitical risk in the Middle East, while partial support came from the tightening of US sanctions against Russian companies.
We maintain a moderately positive view on equity markets, while remaining flexible in the event of potential corrections after the recent sharp rally. European valuations remain reasonable (15.2x 1Y Fwd P/E) and the growth outlook for 2026 is solid (+10% year on year after the expected -3% in 2025), but more visibility will be needed to provide an additional boost to performance, which in 2025 was driven by multiple expansion (unlike in the United States, where earnings growth was the dominant factor). In particular, we expect a favourable environment, supported by the accommodative stance of central banks - with rate cuts mainly from the Fed in a context of falling inflation - and by a gradual recovery in manufacturing activity, aided by more expansionary fiscal policies led by Germany (fiscal policy is expected to contribute positively by +0.5% to EU GDP in 2026 thanks to the €500 billion infrastructure plan and commitments to defence investment). However, after the strong market rise, it is essential to maintain a diversified approach, avoiding excessive concentration and keeping a cash reserve in case of potential market corrections. Among the main risks to monitor: weakness in the US labour market, tensions in the world of US private credit and trade tensions.