• Fed triggers volatility on the equity markets
• Artificial intelligence driving force in the US
• Equity overweight maintained

The past weeks have shown an interesting blend of resilience and volatility across global markets. After a mid-month decline that saw the S&P 500 fall as much as 5 percent and the tech-heavy Nasdaq drop up to 8 percent, equity markets recovered toward the end of November. The initial weakness was largely driven by uncertainty around the pace of Federal Reserve easing and concerns over elevated valuations in AI-related technology stocks, which temporarily interrupted the rally. As the very broad advance of recent quarters has become more selective, richly valued segments have shown greater sensitivity to shifts in policy expectations. Sentiment improved again as more dovish remarks from the Federal Reserve and slightly softer economic data revived expectations of further rate cuts, allowing markets to retrace earlier losses. Ultimately, the S&P 500 closed slightly higher, marking its seventh consecutive monthly gain, while global equities ended broadly flat. Switzerland performed strongly, advancing more than 4 percent, supported by the significant reduction in US tariffs which improved sentiment toward export-oriented sectors. Emerging markets and China declined. In fixed income, US Treasuries and investment-grade credit delivered modest gains, whereas European aggregate bonds were unchanged. Gold rose meaningfully as expectations for additional Fed easing gained traction. These events do not change our long-term investment philosophy, but they do provide helpful background.

 

In the United States, the economic picture remains relatively robust despite a softer labour market, and market expectations for further rate cuts remain alive. In Europe, early signs of cyclical stabilisation are emerging, supported by improving manufacturing indicators and selective fiscal measures, while credible budgetary policy continues to play an important role in anchoring investor confidence, as demonstrated by the recent reaction to the United Kingdom’s fiscal announcements. Against this backdrop, global rate dynamics have become more complex: long-dated Japanese government bond yields have risen noticeably, highlighting how structural fiscal pressures and differing policy paths continue to shape the international interest-rate environment. At the same time, the Federal Reserve’s decision to end balance-sheet reduction has helped keep US financial conditions relatively loose, providing support to investment activity. Recent market swings again show how investors can react strongly to short-term policy signals, even though long-term behaviour continues to follow trends in corporate earnings and interest-rate fundamentals. Looking further ahead, elevated government debt levels and sustained financing requirements in several developed economies may contribute to periods of yield volatility.

 

Against this backdrop, our core positioning remains consistent. We favour a balanced and disciplined investment approach, with selective preference for equities where earnings visibility and structural growth drivers such as productivity improvements and technological innovation support the longer-term case. We see these structural forces increasingly reflected in broadening productivity gains, as more companies apply advanced technologies to enhance efficiency and profitability. In fixed income, we continue to prioritise quality because the risk–reward characteristics remain more attractive there than in segments where spreads have compressed to historically tight levels.

 

In practice, we maintain a modest overweight in equities, focused primarily on the United States, where earnings momentum and technological innovation continue to support the market environment. We hold a neutral stance in government bonds and remain selective in corporate credit, where low spreads limit the potential for attractive risk-adjusted returns. This positioning is designed to keep portfolios resilient amid shifting interest-rate conditions while ensuring participation in compelling long-term opportunities.

 

Please find attached our last Asset Allocation Update for December.