9 February 2026
Q4 2025 earnings season is reaching fever pitch in the US. Here are some of the key themes that have emerged.
#1. The S&P 500 is delivering bumper profits again. For the second quarter in a row, analysts hiked their forecasts coming into the period, which is rare given that expectations tend to get “walked down”, rather than nudged up, ahead of results. Year-on-year growth for Q4 was pencilled-in at 8%. But with a third of firms having reported earnings results, that is already closer to 12%, and it could rise further. Among the surprises has been a stellar pick-up in profits expectations for the materials sector. Overall, profit growth is important because high hopes are baked into prices. The S&P 500 currently trades at a not-cheap forward price-earnings ratio of 22x, meaning profits must deliver for momentum to keep up.
#2. Mega-cap tech and AI stocks – which have driven US profits and price gains for three years – are diverging a bit. The sector still dominates the broad profits picture, but investors are being picky, and some stocks have slumped after disappointing the market. There are signs that AI could negatively impact legacy software firms, as well as persistent concerns about stretched valuations, high concentration, and a potential bubble in AI stocks given the uncertainty about when vast capex investments will pay-off.
#3. Last year’s broadening out of market leadership is continuing – both within the US (notably to small-caps and value) and to emerging markets and Europe. Outside the US, a pick-up in momentum has been helped by a weaker US dollar, but valuation discounts, better fundamentals, and policy support are also playing a role. With the profits outlook strengthening, particularly in Asia, this broadening out could continue.
President Trump’s decision to back Kevin Warsh as the next Chair of the Federal Reserve was a bit of a surprise. However, Fed rate expectations and US Treasury yields have been stable, suggesting investors have placed greater weight on other factors when determining the policy and rate outlook.
It is important to note that US monetary policy is set by the Federal Open Market Committee (FOMC), not just the Chair. While the Fed Chair could push through policy changes if the data are ambiguous and FOMC is split, it would be difficult for any Fed Chair to force through changes in policy that are not broadly supported by the economic data.
Warsh has been regarded as a policy hawk during his career. But more recently, he has focused on the disinflationary impact of AI, which could allow for lower rates, although stronger productivity growth could mean a higher average interest rate. He has also advocated for a much smaller Fed balance sheet.
The pick of a perceived “orthodox” candidate may temper concerns over the erosion of Fed independence and policy rates being cut too far, allowing runaway inflation. January’s US dollar and gold volatility reflect this. But with policy uncertainty still high, the US dollar's role as a reliable haven asset is still under scrutiny.
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 06 February 2026.
Frontier stock markets delivered nearly 40% gains in US dollar terms in 2025, outpacing developed markets, and matching emerging market performance, but with a smoother, less volatile path. In part, that was supported by the tailwind of a weaker dollar. But frontiers also benefitted from the broadening out of global performance that started last year, with investor attracted to improving fundamentals, appealing structural stories, and lower volatility. From here, frontiers look well-placed to progress. Vietnam is one example, where some investment experts expect high single-figure growth in 2026. That’s being driven by a strong recovery in government spending, particularly on large infrastructure projects, higher foreign investment, and better consumer spending – which should be good news for stocks. |
Further afield, countries like Saudi Arabia, United Arab Emirates, Egypt, and Kazakhstan, are all seeing a compelling mix of continuing investment programmes, improving macro conditions, and eye-catching valuations. The combination of local idiosyncrasies, solid earnings growth, and relatively low volatility could keep frontiers close to the front in 2026.
India’s stocks missed out on the recent rally in emerging markets, and the rupee has also taken a hit. Both might now be at a turning point. News that a US-India trade deal is in the works – with US tariffs set to fall to 18% – has sparked a surge in India’s stocks. A deal should ease geopolitical tensions, remove headwinds to Indian local assets, and boost market sentiment. This follows a trade deal with the EU last month. On India’s domestic front, the recent Union Budget saw a lower fiscal deficit target for FY2027, underscoring policy discipline. Extra infrastructure spending and support for manufacturing – particularly in rare earths and semiconductors – should help corporate profits. For fixed income assets, downward pressure on inflation should keep real yields elevated, enhancing the global appeal of Indian government bonds. And the good news for international investors is that an undervalued rupee provides scope for positive FX returns. |
Taken together, trade optimism and closer ties with the US, along with improving fundamentals, reinforce India’s positive outlook.
This year’s gold and silver price moves have been incredible. Ignited by geopolitical tensions and fears over Fed independence, 2025’s rally mutated into a retail-led speculative frenzy, and a correction looked increasingly likely. Where does this leave investors who have looked to gold as a portfolio diversifier? While retail flows have boosted returns, they introduced equity-like volatility – anathema to a safe-haven. Crucially, there is now the risk that as equities sell off, leveraged traders liquidate their gold holdings to meet margin calls, mechanically driving correlations higher. |
Yet, the structural case remains sound. Central bank de-dollarisation provides a firm floor, and demand reliably spikes during geopolitical stress (e.g. recent US-Iran tensions). However, recent volatility tells us that no single safe-haven is flawless, underscoring the importance of “diversifying the diversifiers” – adopting an active, multi-asset approach to capture uncorrelated performance across a broad spectrum of assets.
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 06 February 2026.
Source: HSBC Asset Management. Data as at 7.30am UK time 06 February 2026. 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.
Global equities were mixed as persistent concerns about AI disruption and returns from AI capex fuelled a further rotation away from US technology stocks—with the S&P 500 and Nasdaq indices on course to close the week lower. By contrast, the equal-weighted S&P 500, the Euro Stoxx 50, and the FTSE 100 all touched record highs, reflecting ongoing broadening out to non-tech and value sectors and regions. In Asia, Chinese stocks fell, but Indian indices rallied on news of a US-India trade deal. Kospi experienced choppy sessions and traded lower, while Nikkei 225 advanced ahead of the general election. In commodities, gold and silver fell in volatile trading, alongside a decline in oil prices, as the US dollar strengthened against major currencies. 10-year US Treasury yields fell following soft labour market data.
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