A soft landing outlook strengthened global equities. US equities hit record highs last week. The S&P 500 rose about 1%, while NASDAQ jumped 3.3%. November nonfarm payrolls (NFP) increased by 227K, and the unemployment rate edged up to 4.25%, signalling a moderating labour market and driving rate cut expectations. Fed Chair Jerome Powell’s comments reinforced the view of a resilient economy, allowing for a cautious approach to rate cuts. This, along with robust earnings from tech companies, heightened investor optimism, pushing expectations for a 25 bps rate cut in December and strengthening the outlook for a soft landing.

The STOXX Europe 600 Index increased by 2% and FTSE 100 ended 0.26% higher despite political instability in France triggering the forced resignation of the country’s prime minister. Japan’s Nikkei 225 rose 2.3% as the weakness of the yen supported the profit outlooks for Japan’s export-heavy industries. Chinese markets rallied with both the Shanghai Composite and Hang Seng Index adding 2.3% as market expectations were high on hopes that China would roll out additional measures to ward off the growth risks posed by the incoming Trump administration’s trade policies.

Topic in focus: S&P 500 ends the year with robust earnings performance. The US earnings season is coming to an end with c.99.2% of the companies having reported their earnings (as of 6 Dec 2024). The results are reassuring, highlighting continued strength, with c.76% of the companies reporting positive earnings surprises. This robust performance continues to demonstrate the ongoing resilience of US corporate earnings. Communication services, healthcare, and technology sectors produced the highest positive earnings surprises at 92%, 87%, and 87% respectively.

From a sectoral perspective, we continue to advocate exposure to communication services and technology, especially on Big Tech (i.e. Alphabet, Apple, Amazon, Meta Platforms, and Microsoft), given their strong market positioning and robust cash flow generation abilities. Technology is poised to be a key beneficiary as the world embarks on the transformational journey of artificial intelligence (AI). AI is currently still in its infancy phase and expands beyond hardware (including semiconductor companies), which most investors currently focus on, to encompass software (including cloud services, enterprise solutions, and cybersecurity) and diverse industry-specific applications. This broadening landscape presents a multitude of investment opportunities across the entire AI value chain.

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