Investors should be looking for safe haven asset classes such as gold and equity sectors such as utilities and gold mining

We observe that investor risk appetite is high and appears to be increasing as equity markets continue to rally and notwithstanding the consensus view that US equities are expensive.

At the end of June 2025, the one-year forward P/E ratio for the S&P 500 Index was 22.1. This value is notably higher than the 5-year (19.9), 10-year (18.4), and 25-year (16.4) averages for the index.

Other measures, such as the cyclically adjusted price-earnings (CAPE) ratio, also indicate valuations are close to their highest levels outside of the dot-com bubble.

Even left-field shocks didn’t interrupt the market’s momentum during June which continued the V-shaped recovery from April’s Liberation Day, resulting in the S&P 500 Index ending the month at a new all-time high.

The macroeconomic, political and geopolitical surprises during June included:

• The Israel–Iran conflict erupted in mid-June after Israel launched surprise strikes on Iranian nuclear and military sites, triggering missile and drone exchanges. The US then joined the conflict with coordinated air and missile attacks on three major Iranian nuclear facilities. Iran retaliated with missile attacks on a US base in Qatar. While a ceasefire was reached quite quickly, there would appear to be major concerns about the long-term stability of the region and the future of Iran’s nuclear ambitions;
• Overall tariff de-escalation continued with a trade deal signed between the US and China and despite the US doubling tariffs on all imported steel and aluminium products to 50% for every country except the United Kingdom (which remained at 25%). The increase in market risk appetite appears to indicate a perception that the worst of the trade war is over – we believe the level of uncertainty and risk remains high;
• President Trump’s tax bill (the One Big Beautiful Bill Act) progressed through the Senate and was passed and signed in to law in early July after intense debate and heated negotiations (even within the Republican majority). The views on its impact are polarising with the Congressional Budget Office estimating the bill could add US$2.4 trillion to the budget deficit over the next decade (relative to a projected 2025 budget deficit of US$1.9 trillion prior to the bill) and potentially rising to $5 trillion if the temporary tax cuts are extended beyond 2028, while the Office of Management and Budget disputed those projections, arguing the bill would reduce deficits by US$1.4 trillion over time through accelerated economic growth. On any view, we believe that the One Big Beautiful Bill Act adds to the level of uncertainty and risk in the short-to-medium term, rather than reducing it;
• The US experienced widespread civil unrest in response to mass deportations carried out by the Trump administration. The unrest was most pronounced in Los Angeles and saw the National Guard and later 700 Marines deployed, notwithstanding strong opposition from local and state officials, including the California Governor and Los Angeles Mayor; and
• President Trump demanded that NATO allies increase their defence spending to 5% of GDP by 2035 (relative to the 2% benchmark which had been in place since 2006).

We believe many of these events individually could have triggered a market correction in ordinary circumstances.

Conclusion

In addition to ignoring the events of June, we reflect that investors in equities appear to be ignoring a variety of material ongoing risks, including elevated US debt levels; the unsustainably high budget deficit; uncertainty in relation to the impacts of tariffs (especially on inflation); and the trajectory of economic activity.

We believe these uncertainties are unlikely to be resolved in the short term and should be motivating equity investors to seek safe haven asset classes such as gold and equity sectors such as utilities and gold mining.

Further on utilities, we observe that the utilities sector is benefitting from growing electricity demand in developed markets for the first time in a decade (driven by the data centre boom). This is a genuinely attractive attribute beyond its well-known defensive characteristics.