DNCA Invest Evolutif

Equity markets posted mixed results in September, with the MSCI World down 1.31% and the Stoxx 600 down 2.48%. The month was dominated by a renewed escalation of tensions in the Middle East and a sharp rise in long-term interest rates. Persistent disruptions in the Strait of Hormuz and the spread of the conflict to Bab el-Mandeb pushed Brent crude to $98.03 (up 6.48% for the month), reigniting inflation fears. Against this backdrop, the 10-year Treasury yield reached 5.23%, its highest level since 2007, while the OAT-Bund spread exceeded 120 basis points during the trading session, compared with about 80 basis points at the end of August. Meanwhile, the yield on the French 10-year OAT ended the month at around 4.86%, hovering near the 5% threshold—its highest level since 2002.

In the United States, the energy shock has not yet undermined the strength of the economy. The labor market remained robust in August, with 162,000 new jobs created and the unemployment rate stable at 4.1%, while the Atlanta Fed estimates third-quarter GDP growth at around 5% on an annualized basis. Inflation, however, remains high at 3.4% year-over-year. Against this backdrop, the Fed raised rates by 25 basis points, bringing the Fed funds rate range to 3.75–4.00%, and is maintaining a hawkish stance in light of a still-resilient economy.

In the eurozone, the ECB also raised its deposit rate by 25 basis points to 2.50%, in response to inflationary pressures driven by rising energy prices. Economic activity remains strong, however, with the composite PMI rising to 53.1 in September from 52.0 in August—its highest level since April 2023. This combination of resilient growth and inflation that remains above target could lead the ECB to continue tightening monetary policy by the end of the year.

The sharp rise in interest rates has led to a compression in valuation multiples, with the S&P 500’s 12-month P/E ratio hovering around 19.2x. This decline in multiples is accompanied by an earnings trend that remains favorable: notably, the consensus forecast for 2026 EPS growth for the Stoxx 600 was raised from +16.3% to +17.1% over the course of the month. At this stage, earnings growth is therefore absorbing much of the negative impact of rising rates. With U.S. nominal growth nearing 6%, we remain constructive as long as monetary tightening does not undermine economic momentum. The main risk now appears to us to be less the absolute level of rates than the extent of the tightening cycle the Fed will be forced to undertake.

In this environment, we have maintained our equity exposure at 75%, while increasing our allocation to North America, which now accounts for 42% of the equity portfolio. Europe accounts for 47%, with only marginal exposure to France given persistent political and fiscal uncertainties, while Asia accounts for 9% of the equity allocation. We favor regions that, in our view, offer the best balance between earnings momentum, economic growth, and valuation.

In terms of portfolio changes, we initiated a position in Accenture, whose valuation we view as historically attractive, and increased our positions in Antofagasta, Linde, and STMicroelectronics. Conversely, we continued to reduce our exposure to French stocks amid persistent political and fiscal uncertainties, exiting positions in Orange, Saint-Gobain, and Canal+.

Our top contributors to performance for the month were TSMC, Piraeus Bank, and Athens International Airport. Conversely, Kering, Goldman Sachs, and Saint-Gobain were the biggest drag on performance.

On the fixed-income side, we closed out our exposure to OATs and are maintaining a low sensitivity of around 3, which helps limit the impact of the sharp rise in interest rates.