Lombard Odier favors U.S. stocks, AI and bonds

In equities, Lombard Odier has lifted the U.S. to preferred status, citing the resilience of the economy, improving earnings expectations and relatively more attractive valuations. The bank says consensus forecasts point to future earnings per share growth of 16% over the next 12 months for U.S. companies, while it sees technology sector earnings rising about 28% over the same period. That support is reinforced by what it describes as a roughly 30% jump in third-quarter profits for U.S. corporates, a backdrop that suggests earnings breadth could remain strong enough to offset valuation headwinds.

The bank’s regional preference also reflects where capital is flowing inside global markets. It remains constructive on Japan, where corporate reform and exposure to AI spending continue to support the case for equities, and on global small caps, which it expects to benefit if earnings growth broadens beyond the largest U.S. mega-caps. By contrast, it has cut the eurozone to its least-favoured region, pointing to weaker earnings momentum and rising fiscal uncertainty, particularly in France. For investors, that is a reminder that the regional dispersion trade remains one of the defining features of the current cycle.

Artificial intelligence remains the clearest thematic driver of Lombard Odier’s positioning. The bank has upgraded information technology to its preferred sector, arguing that the market has not fully priced the next leg of profit growth from cloud providers, semiconductor suppliers, data centres and the power infrastructure needed to support AI deployment. It also sees scope for further earnings upgrades in 2027 and 2028, suggesting the investment cycle may still be in an early phase rather than close to exhaustion.

That bullish case has a counterpoint. The same AI trade that has powered much of the market’s leadership also leaves valuations more exposed if spending slows or returns on investment disappoint. Lombard Odier flags a sharp rise in real yields, a slowdown in AI capital expenditure or weaker-than-expected technology returns as the main risks to its equity view. Those are not abstract concerns: they would hit the market’s most crowded winners first, and could quickly compress multiples across the growth complex.

Bond markets, meanwhile, are again offering what Lombard Odier sees as usable income rather than just defensive ballast. The firm remains neutral on sovereign debt overall, but prefers five- to seven-year maturities in the U.S., eurozone, Britain, Switzerland and Australia, and sees selective opportunities in hard-currency emerging-market debt. Its case rests on still-elevated real yields and inflation expectations that have not re-accelerated decisively, creating what it calls a cushion for income and potential capital gains if yields stabilize and then fall.

The bank is less enthusiastic on corporate credit, where tight spreads leave limited room for price appreciation. That stance reflects a broader market reality: investors are still being paid to own duration in some segments, but credit markets no longer offer the same compensation for taking risk. In foreign exchange, Lombard Odier is positive on the U.S. dollar, which it prefers against the euro on the basis of relative growth and real-rate differentials. Adalytica’s U.S. dollar trade signals also show strong awareness and a firmer short-term trend, underscoring how crowded the dollar debate has become.

Emerging markets are part of the same selective framework. Lombard Odier prefers South Korea, Taiwan and emerging-market technology, arguing that heavier index weights in semiconductors and AI-linked manufacturing have structurally improved their profile versus previous cycles. Brazil is another area of interest if fiscal expectations improve. It is more cautious on the United Arab Emirates because of geopolitical risk. That split highlights the bank’s broader message: the opportunity set is still open, but the easiest macro beta has likely passed.

For investors, the practical takeaway is that November is less about buying the market indiscriminately than about owning the earnings streams most insulated from policy and margin pressure. The upside case remains intact if profits keep surprising and yields ease; the downside case is that inflationary shocks or a stall in AI spending revive the market’s sensitivity to rates and valuations.