SocGen strategists assure clients the dollar and fundamentals can sustain this rally

Société Générale strategists are advising clients that the current AI-driven market rally is sustainable, not a bubble, citing strong fundamentals, profit-driven growth, and supportive monetary policy, contrasting it with the 2000 tech bust. They recommend a 50% equity allocation but suggest shifting towards inflation-linked bonds and gold, as they maintain a bearish outlook on the U.S. dollar and forecast gold to reach $5,000 per ounce by 2027. Furthermore, SocGen anticipates the U.S. economy will be more resilient than market fears, partly driven by the 'One Big Beautiful Bill Act' boosting consumption.

Analysis

Société Générale strategists assert the current AI-driven market rally is sustainable, not a bubble, citing robust fundamentals and profit-driven growth. They highlight that capital expenditure is funded by cash generation, and a weaker dollar provides a currency tailwind for Nasdaq's international operations. This contrasts sharply with the 2000 tech bubble, where valuations were double the broader market compared to 1.3 times now, and monetary policy was tightening.

SocGen maintains a 50% equity weighting in multi-asset portfolios but suggests reallocating from traditional defensive assets like cash and U.S. Treasurys towards inflation-linked bonds and gold. This shift is underpinned by a bearish outlook on the U.S. dollar, as central banks have reduced dollar reserves from a peak of 73% to 58% of assets. This trend reflects a broader move away from the greenback's long-term reserve currency status.

The bearish dollar call, coupled with increasing central bank demand, drives SocGen's bullish gold forecast, targeting $5,000 per ounce by the end of 2027, implying a roughly 3% quarterly rise. Furthermore, SocGen anticipates greater U.S. economic resilience in 2026 than market fears, attributing this to the "One Big Beautiful Bill Act." This act is expected to front-load benefits, particularly for the top 10% of wage earners whose tax cuts could significantly boost consumption.

Key Decisions for Investors

• Investors should consider maintaining exposure to AI-related equities, prioritizing companies with strong fundamentals and profit generation, given SocGen's view of a sustainable, non-bubble rally.
• Evaluate reallocating portfolio segments from traditional defensive assets like cash and U.S. Treasurys towards inflation-linked bonds and gold, aligning with SocGen's bearish dollar outlook.
• Assess increasing gold allocations, as SocGen forecasts a target of $5,000 per ounce by the end of 2027, driven by central bank demand and a weakening dollar.
• Monitor U.S. economic data for signs of resilience, particularly consumption trends, considering the potential front-loaded benefits of the 'One Big Beautiful Bill Act' on high-income earners.