From the studio

Podcast: CIO's Kiran Ganesh on AI FOMO and valuation concerns on Apple, Spotify (18 min)
Podcast: Global and Asian tech: Buy the dip or take profit? (8 min)
Video: Our new AI capex forecast and its implications to the AI story (4 min)
Video: Three reasons why we’re still bullish on gold (3 min)

Thought of the day

Market expectations for the Federal Reserve to cut interest rates in December rose on Tuesday after the latest data showed softness in the US labor market. According to the CME Group’s FedWatch tool, fed funds futures are pricing an implied 68% probability of a 25-basis-point cut next month, up from 62% a day earlier.

US companies shed an average 11,250 jobs per week in the four weeks ended 25 October, according to data released by ADP Research. ADP also noted that the labor market slowed in the second half of October, compared with earlier in the month. This is the latest in a string of economic indicators that have pointed to softness in the US jobs market. Last week, data from outplacement firm Challenger, Gray & Christmas showed US companies made the largest October job cuts in more than 20 years, while sentiment surveys indicated increasing consumer concerns over unemployment.

With the US government likely to reopen imminently, markets are hoping for the resumption of official data to solidify their assessment of the Fed’s future rate decisions. We continue to expect the US central bank to cut rates twice more between now and early 2026, providing a favorable backdrop for equities, quality bonds, and gold.

Stocks perform best when growth is durable and the Fed is cutting. Data going back to 1970 show that the S&P 500’s average annualized returns at any given time were just below 10%, and rose to 12% when the US economy was not in recession. But investors enjoy the best returns (15%) when the economy was not in recession and the Fed was cutting rates. As the Fed continues to press ahe ad with its rate-cutting cycle, we maintain our forecast that the S&P 500 should hit 7,300 by June 2026. Additionally, even when the Fed stops cutting interest rates, the effects of lower rates should continue to filter through the economy, suggesting that the performance of US stocks should still be well supported.

Falling yields point to capital gains for quality bonds. While the US Treasury markets were closed on Tuesday for Veterans Day, futures pointed to lower yields across the curve. We think yields can fall further as the Fed makes additional rate cuts, forecasting the 10-year yield to reach 3.75% by June 2026. With the US Treasury increasingly relying on short-term bills to fund the fiscal budget deficit, we believe any significant rise in bond yields is likely to be contained. This creates an appealing risk-reward for quality bonds, which offer durable income in our base case, and have the potential to perform well in the event of slowing economic activity.

Lower real rates increase the appeal of gold. The drop in US real interest rates—the opportunity cost of holding non-yield-bearing assets like gold—has supported gold’s rally, and we believe further Fed easing amid above-target inflation should continue to support the precious metal. We view gold’s recent consolidation as just a pause in its ongoing bull run, as elevated global government debt, as well as political and economic uncertainty, should boost demand for bullion.

So, with more policy easing ahead, investors should ensure sufficient exposure to these asset classes according to their financial plan. Investors should also review their currency allocations as the appeal of the US dollar erodes. Tactically, we favor the euro and the Australian dollar.