A mountain of doubts

July was a good month for risk assets, thus completing a first seven months of the year of strong market performance despite the challenging global context. A priori, all the risks have evolved for the worse: the tariff war deepens, the Fed seems to maintain its restrictive stance for now, the U.S. deficit seems to have no short-term improvement and geopolitics remains on alert.

There are two potential readings for this configuration: the market is wrong and the “bubble” is inflating, or the market evolves according to the change in expectations and/or the materialization of scenarios relative to what was expected, even if it may sometimes seem counterintuitive.

The resilience of assets has fundamentals. First, companies—although with somewhat less dynamic growth—maintain results better than analysts projected and have managed to improve their margins. On the other hand, uncertainty has stabilized. While we have multiple risks in view, none is new and, although they aren't good news, more negative scenarios that were at some point in investors' expectations have not materialized either. Finally, the probability of a recession in the U.S. has decreased. If in April the market estimated up to a 60% probability of a decline in activity, today that number stands at around 30%.

Markets “climb a wall of worry,” and it's precisely then that it's most important to maintain discipline and a diversified investment policy in relation to each investor's objectives.

Original publication in La Segunda on 08/08/2025