Jeremy Richardson from the RBC Global Equity team looks at the subtle shift in mood within global equity markets.
Highlights:
Evidence of a slight shift in sentiment within equity markets as US consumers show caution towards the economic outlook.
Policymakers in US calling for a focus toward domestic issues to address a perceived cost-of-living crisis.
Such policy measures may broaden market participation beyond the narrow focus on AI-driven technology stocks, improving conditions for investors outside this sector.
A wider distribution of economic gains could increase alpha opportunities in 2026 as more stocks outperform.
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Hello, this is Jeremy Richardson from the RBC Global Equity Team here with another update. There's been a subtle change in the mood of equity markets over the course of the last few weeks. There is a sense that the US consumer is having a more difficult time with data points, anecdotal mostly, because we don't have a lot of US federal data because of the government shutdown. Nevertheless, that air pocket is being filled by company news reports, and the anecdotal evidence suggests that consumers are feeling more wary and exercising a greater degree of choice overspending, because they are feeling less certain about the economic outlook.
Policy makers are beginning to notice, though, there was a tweet by the Vice President, which has been supported by other Republican voices, noting how the focus of the administration needs to shift from foreign policy matters, perhaps now more to domestic, in order to deal with what could be seen as a cost-of-living crisis.
That is creating the degree of uncertainty in the short term, but if we think forward into 2026 and so some of the levers of response that the government may employ, we should note that many US consumers will be receiving tax refunds in the not-so-distant future. Removal of taxation on overtime and on tips could lead to significant refunds for a number of investors. And of course, if there is the prospect of some of the tariff revenue, about $300 billion per annum is now going into the US Treasury, some of that gets redirected away from lowering the budget deficit to US consumers. That too could make them feel a little bit better.
That might have some political benefits for the administration, but also for investors, it could actually change the lay of the landscape as we move through into 2026. It could help actually broaden out the spread of the market which, for the moment at least, remains very fixated and dominated by a small group of technology companies driven by the so-called AI trade. That's been great if you've been in it because it's generated an awful lot of value, but it's actually led a quite challenging market conditions for many investors, because the level of performance in the market's being concentrated into a handful of names.
If we see a broadening out of the economic spending driven by some of these policy measures, more stocks may outperform. And if that's the case, then in theory, there should be more alpha available. I hope that's been of interest, and I look forward to catching up with you again soon.
