Yet Franz acknowledged a disconnect between hard data and business sentiment. Survey indicators, such as corporate capex intentions, have been weakening. “When you ask people, are you going to spend on capex, they’ll say no. Much more negative than they were just three months ago,” he notes.
This divergence is fuelling Capital Group’s cautious near-term outlook. Franz expects the US economy to slow to 1.5% growth this year, primarily due to higher tariffs that will compress consumer purchasing power. “The burger you bought last year is going to be 10% higher,” he says. “That’s going to reduce purchasing power.”
He also flagged uncertainty as a second headwind, adding that business leaders are hesitant to commit capital amid policy and geopolitical volatility.
On monetary policy, Franz anticipates two rate cuts from the Federal Reserve in 2025 and another two in 2026, followed by a “wait-and-see” posture.
See also: Central banks embrace gold and geopolitical hedging amid uncertain global outlook: UBS
Despite short-term challenges, Franz is optimistic about the US’s long-term prospects, particularly in productivity growth. He singled out generative AI as a structural tailwind.
“I think we’re in the early innings of this generative AI capex spend. It’s going to be global. It’s going to change the way we do everything,” says Franz, who previously studied innovation and technological change during his academic career.
While Capital Group is staying invested in the US, the firm sees the need to diversify. Andy Budden, equity investment director, shares how the firm is identifying better value outside the US, particularly in Europe and Asia.
See also: US tariffs here to stay, Europe unleashes fiscal firepower: UBP
One approach is to identify global businesses listed in regions where valuations remain depressed. Budden says: “In general, if we can buy two businesses and one’s cheaper than the other for no obvious reason, we’d like to buy the cheaper one.”
Budden also explained Capital Group’s rationale for diversifying away from US equities, despite their long history of outperformance. “The term ‘American exceptionalism’ has become much more widely used in recent years,” he says. “But when we think about it, we think about it over a much longer timeframe — more like 115 years, not 15.”
He credited the US’s dominance to two main factors: enduring productivity growth and investor-friendly characteristics such as strong corporate governance. “American companies are quite good at buying back shares. That naturally puts a floor under earnings per share growth,” he says.
Nonetheless, Budden cautioned that these advantages may not be permanent. “You’ve got to be very careful before concluding that [American exceptionalism] is broken too soon,” he says, adding that there are key factors to look out for: whether the US remains the destination of choice for talent, whether research funding holds up, and whether current policy changes alter corporate capital allocation decisions.
In the meantime, Capital Group is “overweight” on European equities, driven by opportunities in specific sectors. “Europe [has] a couple of very attractive tech businesses,” notes Budden, who pointed to pharmaceuticals and industrials as key themes.
In Asia, the focus is on semiconductors, tech hardware and global businesses with deep exposure to high-growth markets like China and India. Budden says: “We’re getting that exposure partly through local listings, and also through developed-market companies that have built substantial businesses in those countries.”
On asset allocation, Budden confirmed that the firm has made limited changes to its strategic positioning. “The case for a 60/40 equity-bond portfolio still seems to be pretty robust to us,” he says, noting that higher bond yields have made fixed income more attractive while equities remain supported by global growth.
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In Capital Group’s own multi-asset solutions, the emphasis is on giving portfolio managers broad mandates. “We prefer broad portfolios where managers have the flexibility to allocate across markets on a day-to-day basis,” says Budden. “Right now, many of our global portfolios are underweight the US and overweight Europe.”
Despite global macro headwinds, Capital Group’s strategies have delivered solid returns. Budden highlighted the firm’s flagship New Perspective strategy, which focuses on global champions and secular trends. “That strategy has had a very good year — reasonable first quarter, but an excellent Q2,” he said.
With a long-term focus and a bottom-up investment process, Capital Group is positioning for resilience, not short-term market swings. “We’re not really buying markets,” says Budden. “We’re buying businesses.”
