24 November 2025
Global technology stocks have been volatile recently. And while earnings news from Nvidia offered a short-lived boost last week, we think several factors could keep investors on edge into 2026:
#1. While Q3 earnings season delivered more profits beats from technology stocks, other important issues didn’t land quite so well with investors. Continuing massive AI-related capex investment is exacerbating concerns over the return on investment, the possibility of “overspending”, and the circularity of the financing between the major AI companies.
#2. The US economy has become “K-shaped”, with the “winning arm” representing high-income earners and technology industries, and the “losing arm” including lower-income families and struggling firms. While the economy appears to be expanding at a reasonable pace, it is unbalanced with a relatively narrow set of winners driving growth.
#3. US tech stock valuations are high, and they are skewing the overall market. Most major global indices now trade at a significant price/earnings valuation discount to the US, leading some high-profile US investors to express concerns.
#4. While policy uncertainty has fallen this year, key questions remain – particularly on issues of Fed independence and divergent FOMC views on labour and inflation. The probability of a December rate cut has slipped to around 35%.
#5. Competition from China, particularly in new AI-related innovation, aided by strong government policy support, is a growing challenge to US dominance.
So, although the US market outlook is boosted by AI and the strong revenue generation that comes with it, these big uncertainties imply significant valuation risks.
One of the consequences of the AI-fuelled rally in global markets over the past three years is that the technology sector’s weighting in the MSCI World index has grown substantially. Since 2022, its representation in the index has risen to 27% from 18% – a 50% rise.
For global investors, this raises questions about the potential risks of high sector exposure at a time when there are concerns about elevated tech valuations and the timing of payoffs from very large AI capex investments. Uncertainty is spurring market volatility in the past few weeks.
Some Listed Real Assets specialists argue that this backdrop supports the case for infrastructure stocks as a defensive, longer-duration diversifier in stock portfolios. The correlation between infrastructure with both the tech sector and the broader market has fallen over the past three years. And relative valuations have fallen too – with the P/E spread between infrastructure and both the tech sector and the market currently at a three-year low. In part, that valuation discount was caused by the headwinds of high rates.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg, Macrobond. Data as at 7.30am UK time 24 November 2025.
Recent days have seen some important developments regarding the near-term outlook for Fed policy. First, September payrolls showed a solid 119k gain, albeit with the unemployment rate ticking up to 4.4%. Second, the October FOMC minutes showed “many” participants thought it would likely be appropriate to keep policy rates unchanged in December. And third, the Bureau of Labor Statistics cancelled the release of the October employment situation report and will just release the November figures, but not until after the Fed’s December meeting. The upshot is that the market sees just a 35% chance of a 0.25% cut in December.
Taking a step back, some analysts think that robust profits growth prevents a sharp deterioration in the labour market. In that respect, September’s payrolls were comforting, but it is premature to sound the all-clear, given some other indicators have been more downbeat and require careful monitoring: ADP private payrolls, which question the strength of September’s official payrolls; and Challenger layoffs, which spiked in October and would point to rising unemployment if they do not correct back down in November. The data can still be a source of volatility heading into year-end.
Emerging market (EM) carry-trade strategies – which borrow in low-yielding currencies to invest in higher-yielding ones – have had an impressive run this year. Bloomberg’s EM FX Carry index, comprising eight EM high-yielding currencies, is up 13% year-to-date versus the US dollar. Part of this, of course, has been driven by broad weakness in the dollar during the first half of 2025. However, it is notable that since July, while major G10 currencies like the euro have stalled, and others like sterling and the yen have fallen against the dollar, EM majors have powered ahead with further gains.
EM FX has benefitted from US rate cuts and upgrades to the global growth environment, as seen in the strong performance of industrial metals in the second half of the year. This has translated into terms-of-trade gains for many EM economies. At the same time, FX markets have entered a low volatility environment, which is especially beneficial to carry trades.
Since hitting an all-time high in early October, the Bloomberg Galaxy Bitcoin index – which tracks the USD value of Bitcoin – has slumped by nearly 30%. The move has wiped out all of Bitcoin’s gains year-to-date.
It marks another twist in a rollercoaster year for the crypto coin, which has benefitted from strong retail inflows via ETFs, and the tailwind of Fed policy easing. US legislative support with the GENIUS Act and vocal backing from the US administration have also boosted sentiment. But its high sensitivity to macro and market sentiment have seen sharp sell-offs, particularly after April’s ‘Liberation Day’ US tariff announcements. The latest collapse coincided with heightened US-China trade tensions, and uncertainty over whether the US Fed will cut rates again in December.
An interesting feature of the move is that Bitcoin’s usually close correlation with the Nasdaq equity index – and its tendency to trend with tech stocks – has been disrupted. It could mark the start of a new regime where Bitcoin takes its own, more unpredictable path.
Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 24 November 2025.
| Last week |
Source: HSBC Asset Management. Data as at 7.30am UK time 24 November 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. *The US government shutdown has ended, but there may still be delays to the expected releases of official data.
Risk markets traded in a choppy fashion amid ongoing concerns about lofty US tech valuations. The US dollar was on course to strengthen against major currencies, while US Treasuries rose after the delayed September jobs report revealed a surprise increase in the jobless rate. Meanwhile, rising fiscal worries weighed on Gilts ahead of the UK Budget, and increasing supply concerns pressured JGBs, especially at the longer end. US high yield credit spreads widened, underperforming IG. Meanwhile, equities were broadly weaker. US stocks dropped as investors assessed latest earnings and the US rate outlook. The Euro Stoxx 50 and Japan’s Nikkei 225 both fell. Most Asian markets traded lower, with Hong Kong’s Hang Seng and South Korea’s Kospi leading regional declines, while India’s Sensex bucked the trend. Elsewhere, gold prices drifted lower, and cryptocurrencies extended losses.
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