From the studio

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Video: Three reasons why we’re still bullish on gold (3 min)

Thought of the day

Optimism about ending the record-long US government shutdown pushed the S&P 500 1.5% higher on Monday, the benchmark’s largest single-day gain in a month.

The Senate on Monday evening passed a temporary funding measure that will keep most of the US government open through 30 January and some agencies through 30 September. The bill, which now heads to a final House vote on Wednesday, would also pay all federal workers who were denied pay during the shutdown and forbid any federal layoffs through the end of January.

Government shutdowns have historically had only a muted market impact, so any quick shift in investor sentiment should not come as a surprise. The S&P 500 has continued to rise since 1 October, despite the current government closure being the longest in US history. The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally.

Additional Fed rate cuts offer a favorable backdrop. Fed officials this week again showcased differing views on the necessity of further rate cuts, with Governor Stephen Miran calling for a half-point cut and St. Louis Fed President Alberto Musalem highlighting above-target inflation. However, we continue to expect two additional Fed rate cuts between now and early 2026, as recent inflation readings have not been sufficient to shift the Fed’s focus away from the weakening demand for workers. As official economic data resumes following the reopening of the government, we believe more evidence of a cooling labor market should clear the path for further Fed easing.

Robust corporate earnings provide fundamental support. Companies representing over 80% of the S&P 500 market capitalization have posted their third-quarter earnings, and they have overall reported solid results and favorable guidance, with both the breadth and magnitude of earnings beats better than historical patterns. Additionally, consumer spending remains resilient, which should continue to underpin corporate profits. For the fourth quarter, we believe the macroeconomic effects of the current shutdown will be quickly reversed once the government reopens as delayed activity rebounds, federal employees receive back pay, and spending trends resume.

Growing AI spending should underpin further rally. In addition to increased capital spending plans on artificial intelligence (AI), major US tech companies during the recent results season also reported accelerating cloud revenue growth, as well as strong AI compute demand that exceeds expectations. Over the weekend, NVIDIA CEO Jensen Huang said he had asked TSMC for more chip supplies, and that its three AI memory chip suppliers have all scaled up “tremendous capacity.” Without taking any single-name views, we maintain our conviction that the structural growth of AI will continue to drive equity performance in the months and years to come.

So, we believe US stocks have further to run and expect the S&P 500 to hit 7,300 by June 2026. Underallocated investors should add exposure to our preferred areas, including the Transformational Innovation Opportunities of AI, Power and resources, and Longevity.