Kepler Cheuvreux on Monday altered its equity recommendations, moving U.S. equities down to neutral from overweight while raising emerging market stocks to overweight. The strategy team, led by Arnaud Girod, framed the change around what it described as poor risk-reward dynamics in U.S. equities and more attractive valuation opportunities in parts of emerging markets.
The strategists said markets had already priced in a strong reaction to recent developments related to Iran. They emphasized that the ultimate path of the conflict will be more important than simply confirming whether the Strait of Hormuz reopens, suggesting that the market's current posture may not fully reflect longer-term outcomes.
Kepler Cheuvreux set out explicit valuation scenarios for the S&P 500. In a bullish configuration, the index could reach 7,800, which the firm said would represent roughly 10% upside. That scenario assumes a peak price-to-earnings multiple of 23 times 12-month forward earnings. On the other hand, the strategists described a bear case in which the S&P 500 could fall to about 5,200 - a decline of roughly 27% - if valuations reverted to the 2022 low of 15.3 times forward earnings.
The firm warned that a favorable outcome for the positive scenario is not guaranteed. It said achieving further valuation expansion would require either materially stronger first quarter earnings or a favorable resolution of the Iran situation leading to a sharp drop in oil prices, neither of which it treats as assured.
On regional views, Kepler Cheuvreux reported that European equities lack appeal. The strategists pointed out that European valuations currently sit above their 10-year average and that market expectations for 2026 earnings may be too optimistic.
At the sector level, the firm noted that several prominent growth areas have become expensive. Industrials, semiconductors, and so-called sovereignty-related sectors - including telecom, utilities and defense - were highlighted as carrying rich valuations. By contrast, consumer stocks were described as inexpensive but still under ongoing pressure.
Kepler Cheuvreux identified Chinese equities as a potential opportunity. The strategists said Chinese shares remain relatively cheap and trade below recent peaks. They noted two supporting factors: policymakers appear prepared to provide stimulus if export growth weakens, and there are indications that consumer confidence and real estate prices are stabilizing.
Editors note: This article summarizes Kepler Cheuvreux's published views and scenarios as described by the firm's strategists.