US Perspectives: US equity September review: We stay bullish on US equity

Highlights: US equities are at record highs, with the S&P 500 up 12.9 per cent year-to-date, the Nasdaq up 16.5 per cent, and the Dow gaining 8.4 per cent, as of 24 September, at the time of writing. Growth stocks and mega-cap technology continue to drive leadership, while Industrials also stand out as a top-performing sector. Earnings momentum remains strong, with third-quarter S&P 500 earnings expected to grow 7.7 per cent year-over-year, marking the ninth consecutive quarter of growth. Tech, Utilities, and Materials are leading the gains, and full-year 2025 earnings are projected to rise more than 10 per cent.

• Fed easing resumption should be accretive to earnings, driving market valuations higher. We now expect the Fed to ease slightly faster and see 50bps cuts by end-2025 to a target range of 3.50 per cent - 3.75 per cent and then hold steady. Per historical data, since 1990, when the Fed resumes its monetary policy easing cycle, US financial markets tend to rally in the subsequent 12-months as the S&P 500 rises ~22 per cent. US equity markets also outperform the world as the MSCI World Index on average rises 19 per cent and the MSCI World Ex US rises ~18 per cent. Interest rate sensitive sectors tend to lead during these periods, with Financials (+33 per cent), Technology (+30 per cent), and Consumer Discretionary (+27 per cent) showing the strongest average performance in the 12 months after easing resumes
• Corporate activity is adding to the positive backdrop. Buybacks remain elevated, highlighting balance sheet strength, while M&A activity is rebounding sharply, with 2025 deal value expected to rise over 50 per cent from last year
• Tariff risks remain a theme, but so far inflation effects have been muted. Significantly, most tariff accords have been less severe than the Liberation Day announcements, providing upside impetus to earnings estimates. Resilient consumer spending, a stable labour market, and productivity gains from artificial intelligence are helping corporates offset trade headwinds
• With easing underway, resilient earnings in the face of tariffs, and upward earnings revisions, prospects for S&P 500 corporate earnings suggest acceleration over the next six quarters. Therefore, we maintain an overweight US equities stance. The tech revolution led by productivity enhancing AI, nearshoring/onshoring and the re-industrialisation of the US continue to lift growth prospects and valuations