US Perspectives: US equity July review: Strong earnings, impending Fed ease and structural tailwinds make a healthy case for US equity

Highlights: US equity markets have held up well so far this year and have posted solid gains in the month of July, supported by better trade headlines, clearer policy signals, and reduced geopolitical uncertainty. Corporate earnings remain resilient, with S&P 500 earnings growth expected to be a solid 10.3 per cent for the second quarter, up from the projected 4.9 per cent at the beginning of the season. If this holds, it will mark the third straight quarter of double-digit earnings growth for the S&P 500.

• We remain overweight US equities, supported by robust earnings quality, margin resilience, and still-reasonable valuations. FactSet notes that actual earnings growth for the S&P 500 has beaten estimates in 37 of the last 40 quarters, and we expect further upward revisions for the second half of 2025 as recently announced tariffs appear less severe than initially feared on Liberation Day
• The Fed is expected to begin easing by September, which should provide cheaper capital and prove accretive for corporate earnings. Since 1990, there have been six prior instances where the Federal Reserve paused rate cuts before resuming easing later, and once cuts resumed, markets tended to rally. Bonds delivered a 7.6 per cent return on average over the following 12 months, while stocks surged with an average 23.1 per cent return in the 12 months after rate cuts resumed
• Importantly, the current tech-driven productivity boost should help offset inflationary pressures from tariffs, helping preserve healthy margins. While valuations have risen, they remain well below prior peaks and still offer scope for further expansion before entering stretched territory
• We maintain our US equity overweight given strong earnings revisions, an easing Fed, and durable margin tailwinds, even amid policy uncertainty