The general sentiment in the market was particularly buoyant over the summer as key risks surrounding global trade and inflation retreated from its peaks. We have also seen parts of the market turbo-charged by recent announcements in the AI world. Large US technology companies, the dominant driver of equity markets in recent years, are now scrambling in a highly competitive race to build-out new data centre capacity.  

This flurry of activity has resulted in an ever more complex web of partnerships, orders and co-investments between and amongst leading US technology businesses. In addition, a growing trend of debt issuance amongst these companies is now raising eyebrows around how sustainable the recent market strength is likely to be and whether these companies’ valuations have become too expensive. 

Beyond the AI story, the wider US equity market is likely to remain sensitive to changes in the global trade and inflation outlook. While we do not expect a fresh flare up in trade tensions, the inflation outlook is less clear with the headline rate still comfortably above the Federal Reserve’s 2% inflation target.  

Following a US government shutdown, the Federal Reserve is now expressing caution over further interest rate cuts as we wait for the release of a backlog of economic data. 

With equity market valuations top of mind, we are increasingly looking to the rest of the world for new ideas and opportunities.  

One region that we are actively hunting in is emerging markets which are supported by relatively cheap valuations and improving fundamentals following a de-escalation in global trade tensions. Emerging markets are also a key beneficiary of a weaker US dollar which has experienced a drop in confidence following President Trump’s Liberation Day tariff announcements. 

Earlier in the year, Europe offered a source of optimism centred around a large fiscal package from the German government and wider moves to build self-sufficiency in the face of increasing US isolationism. Several structural factors now weigh on this trend, with questions around government debt sustainability driving the direction of bond markets.  

With a budget imminent, UK policymakers are only too aware of this dynamic and any further tax raising measures will only weigh on potential growth.