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AI investments remain a major driver of GDP growth
What happened last week?
Global markets
A good week for equity markets while waiting for a rate cut
Last week, global equity markets continued to move higher as investors are waiting for an interest cut by the Fed this week. In USD, the MSCI All Country World Index rose 0.6%. The S&P 500 was up 0.4% during the week, the Nasdaq 100 climbed 1.0% while Europe was up 0.8% and Emerging Market was up 1.4%. Semiconductors and software stocks were strongly up last week at +4.3% and +5.2% respectively. Within Emerging Markets, Taiwan and South Korea shined being up +1.7% and +5.0% helped by the sentiment towards semiconductors and AI.
US
Last week in U.S. equities climbed higher, with leadership coming primarily from growth and cyclical-oriented sectors. Worth noting is the outperformance of smaller caps with the Russell 200 up 0.9% helped by the strong performance of US regional banks (up +3.5% over the week)
The standout sectors were Communication Services, which posted the strongest weekly gain, closely followed by Consumer Discretionary and Information Technology. These sectors were powered by a rebound in mega-cap and semiconductor names, which regained momentum after recent softness. Software that had a difficult year so far did rebound following the good results of Salesforces.
In contrast, more defensive and rate-sensitive sectors lagged behind. Real Estate, Consumer Staples and Energy posted the smallest gains for the week, reflecting investors’ preference for cyclicals and growth over safety despite the uncertainties.
Overall, the market’s breadth was wide with all 11 of the S&P-500 sectors ended the week in the green, but it was the pro-growth areas and small-cap stocks that really drove the rally.
Europe
Last week European equity markets delivered a good performance being up 0.4% in EUR but 0.8% in USD, with cyclicals such as autos, industrials and financials emerging as the primary drivers of strength.
In particular, the autos & parts sector stood out, rising around 5–6 % as investors cheered stronger global vehicle demand and favorable sector momentum.
Technology shares posted moderate gains, helped by demand for semiconductor and chip-equipment names like in other regions.
Overall, the tone was constructive yet selective: investors rotated away from defensive and stable-yielding sectors toward industries more sensitive to economic cycles.
Rest of the world
In China’s third-quarter earnings season, topline growth improved, though sector margins diverged. MSCI China companies posted 3Q25 revenue growth of 2% YoY, with earnings growth sustained at 4% YoY. Following earnings releases, consensus profit forecasts were revised upward, most notably for non-bank financials. Sector-wise, non-bank financials and technology delivered robust earnings growth of 81% and 42% respectively, while renewables also showed a strong 74% YoY rebound, partly due to a low base. The property sector remained the main drag on overall earnings.
Company guidance was mixed: consumer sectors stayed lukewarm, while tech remained upbeat. Most companies continue to focus on cost control and product differentiation to support profitability.
Our view on equity
Equity asset class
POSITIVE in the current environment
We shift to a Negative stance on government bonds. Positive global growth dynamics, price pressures in the US and profligate fiscal policies reduce the attractiveness of long-term government bonds as a potential hedge for economic downturn and increase the risk of higher long-term yields. Limited prospects of further central banks’ rate cuts and unattractive yield curve slopes at the front-end also reduce the attractiveness of government bonds on short-to-medium term maturities.
Earnings
POSITIVE as breath to increase
Earnings remain a tailwind for equities, supported by a strong third-quarter earnings season and expectations that growth will accelerate and broaden in 2026. Technology stocks should continue to deliver robust performance, while the “old economy” is set to recover.
Valuation
NEUTRAL as US large caps remain expensive
US technology stocks remain expensive, although growth and profitability provide some support while international equities are more reasonably valued. Equity risk premia remains low in both the US and Europe.
Disclaimer
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