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TSMC’s dominance of semiconductor manufacturing keeps growing
Source: Counterpoint
What happened last week?
Global markets
The “rotation” narrative persisted last week, with the S&P 500 declining –0.4% while the MSCI AC World ex‑USA gained +1.8%. Although major indices briefly reached new record highs early in the week, momentum continued to favor smaller U.S. capitalizations as well as Emerging Markets. Sentiment was supported by “Goldilocks” economic data and the market’s notable ability to look through rising geopolitical noise - at least until the weekend, when Trump’s tariff threat related to the situation in Greenland pulled attention back to political risk.
Global equity markets overall maintained a constructive tone, with the MSCI ACWI advancing as investors embraced a broadening rally. Geopolitical developments, ranging from regime change in Venezuela to renewed rhetoric concerning Greenland, generated headlines but did little to dent risk appetite. Instead, investors remained focused on the productivity narrative linked to AI diffusion and the start of the Q4 earnings season, led by major U.S. banks and TSMC in Asia.
US
all Street witnessed a tale of two markets. While the Dow Jones Industrial Average crossed the 49,000 threshold for the first time, the tech-heavy Nasdaq faced headwinds from profit-taking in the "Magnificent Seven". Economic data continued to support a soft-landing thesis: December Nonfarm Payrolls came in soft at 50,000, yet the unemployment rate ticked down to 4.4%. This "cool but not cold" labour market, paired with in-line CPI data (2.7% YoY), keeps the Fed in a flexible position. The earnings season began with encouraging results from major US banks.
Major US banks reported strong quarterly numbers, with solid net income growth, record revenues in selected segments, resilient loan and deposit trends, and no meaningful deterioration in credit quality. Analysts noted that the sector benefited from a steeper yield curve and active capital markets, despite earlier concerns related to tariff policies. The news of a potential cap on interest rates for credit cards presents a risk, but such regulation would still need to pass through Congress.
Europe
European equities ended the week near record highs, with the STOXX 600 posting its fifth consecutive weekly gain. The region benefited from renewed strength in "old economy" sectors, notably Defence and Mining, the latter supported by revived merger discussions involving Glencore and Rio Tinto. By contrast, the luxury sector faced a "perfect storm" driven by retail-side financial distress, ongoing macroeconomic challenges in China, and fading optimism around post-pandemic pricing power. Geopolitics remained in focus as several European countries issued joint statements on transatlantic trade and regional security, though markets interpreted these developments through a lens of stability rather than crisis.
Rest of the world
In Asia, Japan was the standout performer. The Nikkei 225 surged more than 5% at its peak following news of a possible snap election, which investors viewed as a precursor to further pro-stimulus policies from Prime Minister Takaichi.
China delivered a more measured performance. Although inflation data showed signs of stabilisation, domestic indices were restrained by new regulatory actions aimed at curbing high-frequency trading and raising margin requirements, alongside soft consumption figures.
Meanwhile, TSMC's Q4 earnings provided a crucial lift to the global semiconductor ecosystem. The company guided to strong revenue growth and increased its 2026 investment plan, easing fears of an imminent AI spending "cliff". This continued to support positive sentiment toward Taiwanese and South Korean equity indices, as well as several global technology peers.
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.
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