17 November 2025
Third quarter earnings season is drawing to a close in the US – and is well under way in Europe and Asia. The overall headline is that – with the exception of China, which saw a modest miss – Q3 has been strong almost everywhere, including in the US, Europe (given low expectations), Japan, and many emerging markets. As it stands, year-on-year Q3 earnings growth for the S&P 500 is on course to reach 13%, up from an expected 8% at the start of results season.
Given the frenzy of AI enthusiasm this year, key US technology stocks have been the focus. After a strong first half of the year, the technology and communications services sectors – which are together expected to contribute 65% of total profit growth in 2025 – came into Q3 with record upward earnings revisions. Yet, the tech sector still managed to beat expectations, supported by continued strong capex investment. More surprising is that defensive sectors, such as Healthcare and Consumer Staples, saw the strongest beats.
So where does this leave us? Despite bumper Q3 numbers, US stock market volatility has risen as investors question the implications of massive AI-related capital expenditure, alongside mixed news on the labour market (see Page 2). Given the ongoing uncertainty around these issues, episodic volatility in US stocks could become the norm in 2026, even as profits remain strong. With global profits and GDP convergence next year supporting the possibility of an ongoing broadening out of market returns, geographically diversified portfolios may be the ideal route to maximising returns and limiting exposure to downside AI and US macro risks.
A weaker US dollar, relatively low valuations, and the global spread of AI enthusiasm have been powerful catalysts in Asian stock markets this year. A pick-up in global flows has contributed to a re-rating in markets like China, South Korea, and Japan – with MSCI indices recording year-to-date USD gains of 39%, 88%, and 24%, respectively.
But while positive sentiment has boosted prices, further valuation upside will need evidence of profits growth. On that front, the current Q3 earnings season has been encouraging. Regional results have largely met expectations so far, with eye-catching strength in South Korea and Japan, and the technology sector still a key growth engine. Meanwhile, India has continued to see a recovery in earnings growth, driven by strong performance in non-tech sectors like Energy, Telecommunications and real estate.
With the AI theme potentially boosting profits in Asian markets like mainland China, South Korea, and Taiwan next year, the outlook for Asia remains optimistic. Strong structural stories and relatively wide valuation discounts compared to developed market indices should also support the outlook.
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 14 November 2025.
The US government shutdown has come to an end, but it will take time for production of official data to get back on track. In their absence, markets have focused on privately produced data – especially on jobs. These data broadly suggest that the labour market continues to cool. While the ADP private payrolls number rebounded in October (+42k), it followed a 29k decline in September and the three-month average is running at just 3k, implying a further moderation of official payrolls. Moreover, ADP’s new series of weekly payrolls suggests job growth slowed in the second half of October. While the ISM employment components edged up, both manufacturing and services remain notably below the 50 break-even level. Perhaps more worryingly, the so-called Challenger report showed the largest number of layoff announcements for any October since 2003. This series can be volatile, but such an outturn is a reminder of the downside risks to employment that the Fed is concerned about. |
Overall, the US economy appears stuck in a tug-of-war between rampant AI investment and a cooling labour market, a dynamic that points to the potential for greater market volatility through year-end.
Since the events in April and May, risk-off episodes have seen the dollar resume its status as a hedge against equity drawdowns. So perhaps it’s back to business-as-usual? Maybe. But it’s sensible to have some doubts. While the dollar still has all the hallmarks of a reserve currency – stability, liquidity, and convertibility – its ‘exorbitant privilege’ is under strain amid big fiscal and trade deficits, and a perceived erosion of US institutional integrity. Increased exposure to gold, alternative currencies, or non-dollar assets could be the way forward, just in case.
The credibility of stablecoins as an alternative to conventional currencies got a boost in July with the US GENIUS Act. The new law gives some legal clout to an asset that could eventually deliver cheap, instant, borderless transfers of value, and a new digital money infrastructure – potentially enhancing both market efficiency and financial inclusion. Stablecoins are a form of cryptocurrency. But unlike volatile crypto coins, their value is designed to remain stable by being pegged to specific assets, like the US dollar. But while adoption grows, risks persist, particularly the potential of transferring volatility to traditional funding markets, including US Treasuries. Academic research has highlighted the nonlinear nature of these risks: while early-stage stablecoin growth may ease capital constraints, at scale it could have unpredictable impacts on safe-asset pricing, bank balance sheets, and financial stability. |
With the new US framework expected to drive interest in stablecoins, it could begin to challenge how investors think about existing low-risk assets, and is perhaps another reason why investors should ‘diversify the diversifiers’ heading into 2026.
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 14 November 2025.
Source: HSBC Asset Management. Data as at 7.30am UK time 14 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 fared well as the US government reopened, with Q3 US earnings also remaining strong. The US dollar weakened against most major currencies. US Treasuries edged down as markets pared back expectations for a December Fed rate cut. Reduced political uncertainty lifted French OATs, whilst weak UK labour market data supported Gilts. High-yield credit modestly outperformed IG bonds. Global equities were mostly higher. US stocks were mixed, with the tech-heavy Nasdaq lagging the S&P 500. The Euro Stoxx 50 index reached an all-time high. Japan’s Nikkei 225 was relatively unchanged following the recent decline. Oher major Asian markets advanced, led by the Hang Seng index, followed by Korea’s Kospi. India’s Sensex and China’s Shanghai Composite index also rose. In commodities, oil prices traded broadly sideways, whilst gold rallied.
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