14 November 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth

The US equity market shrugged off the longest ever government shutdown as Q3 earnings smashed through expectations – a familiar sight this year. Now, with a temporary reprieve in the shutdown, investors are weighing up what the upcoming slew of economic data means for interest rates.

The market was leaning towards a rate cut in mid-December, based on the evident slowdown in the US jobs market. This cut has been complicated by the fact the Fed officials will not have a reading for October’s unemployment rate. Relying on November’s data along may be seen as too volatile for some Fed members that are hesitant about further cuts while inflation still remains above target.

This uncertainty has edged the market pricing of a rate cut down to a coin toss. After another strong year for US markets, thanks to a 18.4% rally in the Nasdaq index, this is enough of an excuse to slim down their US positioning. A train of thought that we have some sympathy with.

While we expect the Fed will indeed cut in December, we are not assuming rates will continue to fall in 2026. It’s one more and done, in our opinion. There is also little doubt that the US market has had a good run, and we are happy to take some profit on our key overweight this year: the US equity market.

Valuations are lofty, but then so is earnings growth. We have argued all year that the higher valuations of US markets can be explained away by pointing to the far superior profitability and exposure to the strides forward in AI innovation. The US economy has further established itself as the beating heart for technology in the Developed Economies.

Yet even US markets need to take a breather. The role out of data centres across the US is facing the typical constrains one would expect with such an epic infrastructure project, such as labour, materials and higher energy costs. This may take some of the shine off US markets.

Meanwhile the opportunity set in Asia has broadened thanks to corporate governance reform and a new expansionary policy agenda in Japan.

The good news is that continued double-digit earnings growth can do the heavy lifting in easing some of the higher valuations in the US. We’re also optimistic that investors interest will shift towards companies that can adopt AI – and US companies are ahead of the game here too.

On balance, now is a good time to seek out opportunities in Asia, where markets are cheaper, but still offer growth. Across the Developed Markets the US continues to lead on earnings growth, which keeps us mildly positive, even if the next few months may be a little volatile.