Summary of Key Points from the Conference Call Industry Overview - The focus is on the US equity markets and macroeconomic conditions leading up to the Federal Reserve (Fed) meeting - The current environment is characterized by a resilient risk appetite despite headwinds from interest rates Core Insights and Arguments 1. **Market Performance**: US equity markets closed higher last week, supported by dovish expectations from the Fed. The Risk Appetite Indicator reached 0.66, marking the largest two-week increase since May [1][7] 2. **Mixed Macro Data**: - ISM manufacturing index fell for the ninth consecutive month - ADP reported the largest one-month drop in employment since March 2023 - ISM services index showed improvement - Core PCE inflation rose by 0.2% month-over-month and 2.83% year-over-year - Initial jobless claims decreased to 191k, below expectations [1] 3. **Upcoming Economic Reports**: Key data releases include the JOLTS report and the employment cost index, with expectations of 7,100k and a 0.8% increase respectively [1] 4. **Volatility in Q4**: Following a 'Goldilocks' backdrop of growth optimism and dovish Fed expectations, markets have experienced increased volatility in Q4, particularly in tech-heavy indices like Nasdaq [2] 5. **Bond Yields**: There has been upward pressure on bond yields, especially in Japan and Germany, with the 30-year JGB yield reaching 3.4%, a rise of approximately 110 basis points year-to-date [2][9] 6. **Central Bank Divergence**: The dispersion in G10 central bank pricing has widened, with more banks now anticipating rate hikes in 2026 [2][13] 7. **Investment Strategy**: The company maintains a modestly pro-risk stance into 2026, favoring equities over bonds, commodities, and cash, while underweighting credit [3][6] 8. **Market Expectations for Rate Cuts**: The market is pricing in a 55% probability of more than two rate cuts in the next 12 months [6][17] Additional Important Insights - **Sector Performance**: Growth-sensitive segments, particularly cyclicals and the Russell 2000, have shown strong performance recently [2][15] - **Global Economic Sentiment**: The sentiment indicators suggest a cautious but optimistic outlook among investors, with a notable focus on diversification and hedging strategies [3][27] - **Asset Allocation Recommendations**: The report includes specific asset allocation recommendations, indicating overweight positions in equities and underweight in corporate bonds [20] This summary encapsulates the key points discussed in the conference call, highlighting the current state of the US equity markets, macroeconomic indicators, and strategic investment insights.

Market Overview - Global financial markets experienced subdued trading activity with minimal changes across major indices, currencies, and commodities, indicating a lack of significant market-moving news [2] - U.S. equity indices showed a slight downward trend, with the Dow Jones Industrial Average (DJIA) closing at 47920, down 0.04%, and the NASDAQ (IXIC) declining 0.17% to 25651, marking the largest percentage drop among reported indices [3] - European markets displayed mixed results, with the German DAX (DAX) down 0.01% to 24039, while the French CAC 40 (CAC) gained 0.02% to 8117, and the UK's FTSE 100 (FTSE) remained unchanged at 9660 [3] Asian Markets - Asian markets showed a slightly positive trend, with Hong Kong's Hang Seng Index (HSI) increasing by 0.03% to 26076 and Australia's ASX 200 (ASX) climbing 0.02% to 8607 [4] Commodity Markets - In the commodity markets, crude oil prices saw a notable increase, with USOIL appreciating by 0.21% to 6010, suggesting a slight rise in demand or tighter supply expectations [5][8] - Gold prices also experienced a modest gain of 0.04%, reaching 4200, indicating a slight uptick in safe-haven appeal amidst a generally quiet market [5][8] Currency Markets - The foreign exchange market saw the EURUSD pair dip by 0.06% to 11636, reflecting a minor weakening of the euro against the U.S. dollar [5][8]

Summary of Key Points from the Conference Call Industry Overview - The report provides insights into various asset classes including equities, fixed income, foreign exchange (FX), and commodities, with a focus on market sentiment and positioning as of August 29, 2025. Key Highlights Equities - **S&P 500**: Closed at 6,460, with a forecast range for Q2 2026 between 4,900 (bear) and 7,200 (bull), indicating a potential return of -22.9% in a bear case and 12.7% in a bull case [3][7]. - **MSCI Europe**: Closed at 2,198, with a forecast range of 1,610 (bear) to 2,620 (bull), showing a bear case return of -23.6% and a bull case return of 22.4% [3]. - **Topix**: Closed at 3,075, with a forecast range of 2,100 (bear) to 3,250 (bull), indicating a bear case return of -29.5% [3]. - **MSCI Emerging Markets (EM)**: Closed at 1,258, with a forecast range of 870 (bear) to 1,360 (bull), showing a bear case return of -28.4% [3]. Foreign Exchange (FX) - **Japanese Yen (JPY)**: Forecasted to weaken to 147 against the USD, with a bear case return of 17.3% [3]. - **Euro (EUR)**: Expected to trade at 1.17 against the USD, with a bear case return of -4.4% [3]. - **Indian Rupee (INR)**: Reached an all-time low of 88.2 against the USD, with a forecast of 12.5% return in a bear case [11][12]. Fixed Income - **UST 10-Year**: Yield at 4.23%, with a forecast range of 3.45% (bull) to 4.00% (base) [3]. - **US Investment Grade (IG) Bonds**: Yield spread at 79 bps, with a bear case return of -2.7% [3]. Commodities - **Brent Crude Oil**: Closed at $68, with a forecast range of $50 (bear) to $120 (bull), indicating a bear case return of -24.2% [3]. - **Gold**: Closed at $3,429, with a forecast range of $2,975 (bear) to $4,200 (bull), showing a bear case return of -17.2% [3]. Market Sentiment and Positioning - The **Market Sentiment Indicator (MSI)** aggregates survey positioning, volatility, and momentum data to quantify market stress and sentiment, indicating a mixed sentiment across various asset classes [53][58]. - **Equity Positioning**: US equities show a net positioning of 28% among asset managers, while EM equities show a higher net positioning of 42% [66]. - **Bond Positioning**: UST 10-Year shows a net positioning of 38% among asset managers [66]. Additional Insights - The report highlights the importance of monitoring fund flows across approximately 5,000 ETFs globally, covering around $7 trillion in assets, to gauge demand across assets and regions [22]. - The **COVA (Correlation-Valuation) scorecard** identifies good portfolio diversifiers at reasonable prices, rewarding assets with negative correlation to equities and attractive valuations [85]. Conclusion - The current market environment reflects significant volatility and mixed sentiment across various asset classes, with potential risks and opportunities identified in equities, fixed income, FX, and commodities. Investors are advised to consider these factors in their investment decisions.

Investment Rating - The report provides a detailed forecast for various asset classes, indicating a bearish outlook for equities and a mixed sentiment for fixed income and commodities [2]. Core Insights - The report highlights significant declines in equity indices, with the S&P 500 expected to drop by 20.7% in a bear scenario, while the MSCI Europe is projected to decline by 22.3% [2]. - The report notes that the AAII survey for Net Bulls has reached a six-month high, indicating a potential shift in market sentiment [6]. - US Quality metrics have fallen to their lowest levels since 2001, suggesting deteriorating market conditions [6][9]. Summary by Sections Equities - S&P 500 forecasted returns range from 4,900 to 7,200, with a base case return of 4.7% [2]. - MSCI Europe shows a similar trend with a forecast range of 1,610 to 2,620 and a base case return of 7.3% [2]. - Topix is projected to decline by 23.3% in a bear scenario, with a base case return of 5.0% [2]. Fixed Income - UST 10-year yields are forecasted to range from 2.85% to 4.35%, with a base case return of 12.1% [2]. - US Investment Grade (IG) credit is expected to yield excess returns of -0.1% in a bear scenario [2]. Commodities - Brent crude oil is projected to have a bear case return of -23.6%, with a base case return of -8.3% [2]. - Gold is expected to decline by 20.6% in a bear scenario, with a base case return of -6.5% [2]. Market Sentiment - The Market Sentiment Indicator (MSI) reflects a negative sentiment shift, with various indicators showing increased volatility and negative positioning [55][62]. - The report indicates a significant divergence in positioning among asset managers, hedge funds, and dealers across different markets [62]. Cross-Asset Correlations - The report notes that cross-asset correlations have increased, with equities showing a correlation of 71% and credit at 82% [73]. - The correlation between equity and rates is notably negative at -7%, indicating a potential decoupling of these asset classes [73].

Investment Rating - The report maintains an "Overweight" (OW) position on cash, equities, credit, and bonds, while being "Underweight" (UW) on commodities for the next three months [3][21]. Core Insights - Emerging Market (EM) equities have shown resilience despite tariff uncertainties, with a projected earnings growth of 10% to 11% for CY 2025/26, which is 2-3 percentage points higher than previous forecasts [2][6]. - The S&P 500 had its best May performance since 1990, outperforming EM equities year-to-date, although EM equities have generally outperformed US equities in the same period [2][7]. - A weaker US Dollar is expected to support EM outperformance, as EM equities have historically benefited from a weaker Dollar [2][14]. Summary by Sections Economic Outlook - The report highlights the importance of upcoming economic data and decisions from G4 central banks, with expectations of a 25 basis point rate cut by the ECB and stable unemployment rates in the US [1][2]. Market Performance - The S&P 500's performance in May 2025 was notably strong, while EM equities have shown positive macro surprises, contrasting with muted US macro surprises [2][9]. Asset Allocation - The report suggests a diversified approach, advocating for international diversification in equities and bonds, and highlights the potential benefits of EM equity and local rates [3][6][21]. Correlation Analysis - The correlation between MSCI EM and the US Dollar has turned more positive, indicating a decoupling of EM rates from US rates, which may provide investment opportunities [16][18].