Strong results and trade truce drive equities higher

Robust financial results and a trade truce between the US and China have provided new momentum for equities – and consequently also for pension returns at PFA. For a typical PFA customer, the year-to-date return is now close to 10 per cent, while the accumulated return over the past three years has reached 40 per cent.

Despite a year marked by trade tensions and global uncertainty, the equity rally remains intact and is now entering its third year. Global growth has maintained a stable level, and the ongoing earnings season in the US is showing promising results that generally support the positive trends.

"More than 70 per cent of companies in the S&P 500 have now reported their third-quarter results. The majority have delivered increased profits and exceeded investors’ earnings expectations. This has provided tailwinds for equity markets, and all indications are that we are heading for yet another year of positive returns – for the third consecutive year," says Tine Choi Danielsen, Chief Strategist at PFA.

The annual return for a typical PFA customer with medium risk is currently close to 10 per cent, and over three years, the same customer has achieved returns of approximately 40 per cent, which are among the best in the industry.

Too many eggs in one basket increases investment risk
Ahead of the earnings season, attention has naturally centred on the major tech giants such as Amazon, Microsoft, Nvidia, Alphabet, and others, which have been the primary drivers of returns in recent years. As a result, there is little room for negative surprises – and none emerged this time, as the majority of the major tech companies reported continued growth with increasing earnings.

At PFA, these companies remain a key part of the investment portfolio, but the associated risks of such extreme value concentration are also acknowledged.

"When so much equity value is concentrated in so few companies, it increases investment risk. However, it is also risky to exclude them. There is no doubt that one would have missed out on significant returns if one had not been invested in these companies, which have accounted for up to 40 per cent of the returns from the US S&P 500 equity index over the past three years," says Tine Choi Danielsen.

Trade truce provides additional tailwinds
She elaborates that the companies’ progress is largely driven by a robust global economy, which has recently been buoyed by the trade truce between the US and China. The agreement has – at least temporarily – put a lid on the conflict over tariffs and export restrictions on, for example, microchips and rare earth elements. All in all, it is therefore difficult to identify any dark clouds that could immediately dampen growth or hinder the equity rally, although visibility could certainly be better.

"Geopolitical uncertainty has probably diminished but is far from gone. We have seen before that many of Trump’s trade agreements have been more like writing in sand than setting them in stone," says Tine Choi Danielsen, pointing out that economic visibility is currently challenged by the US government shutdown, which means there is a temporary lack of key economic indicators – including labour market data.

Despite uncertainty around geopolitical conditions and temporarily limited access to updated economic data, PFA assesses that the fundamental conditions remain favourable, and therefore maintains an equity risk level aligned with PFA’s long-term strategic approach.