Key Points
- The labour market is cooling, with private-sector data showing rising layoffs and softer hiring. However, a sharp surge in unemployment from AI-driven job losses is unlikely.
- Inflation is expected to remain sticky above the Fed’s 2% target in 2026, with goods prices rising due to tariffs, while services inflation gradually eases, aided by cooling shelter costs.
- We expect US economic growth to moderate in 2026, weighed down by softer consumer demand. AI-related investment should help prevent a recession, but cracks in the economy are emerging.
- The digital economy remains a bright spot, supported by strong AI demand, rising monetisation, and diversified revenue streams.
- Considering stretched valuations and downside risks from a slowing US economy, we have downgraded US equities to 2.0 Stars “Not Attractive” while remaining positive on the digital economy sector.
Labour market to continue cooling
Figure 1: Private payrolls have contracted in four out of the past six months
Inflation to pick up but remain manageable
Figure 2: US inflation is likely to pick up
Figure 3: Shelter inflation should continue cooling in 2026
US economic growth to moderate
Figure 4: Delinquencies in the US are rising
Figure 5: Equities represent a major portion of US household net worth
Figure 6: Big Tech firms are expected to sustain their elevated CAPEX
Underweight the US while remaining positive on the Digital Economy sector
Figure 7: Tech companies generate a significant amount of revenue overseas
Figure 8: The tech sector is expected to continue leading S&P 500 earnings growth
Table 1: Projections for the S&P 500 Index
|
S&P 500 Index |
2024 |
2025E |
2026E |
2027E |
|
Earnings Per Share (EPS) |
238.3 |
271.1 |
306.2 |
342.7 |
|
Earnings Growth YoY |
7.5% |
13.7% |
12.9% |
11.9% |
|
PE Ratio (X) |
28.7 |
25.3 |
22.4 |
20.0 |
|
Target Price (based on a fair PE of 22X) |
7540 |
|||
|
Upside Potential |
10.1% |
|||
|
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 30 November 2025 |
||||
Figure 9: Shares prices are driven by earnings growth in the long run
Table 2: Recommended products
|
Sector |
Recommended Products |
|
Global Technology |
• Fidelity Global Technology A-ACC-USD • Eastspring Investments Unit Trusts – Global Technology SGD |
|
China Technology |
|
|
Asia Semiconductors |
• Global X Asia Semiconductor ETF (HKEX: 3119) • Franklin FTSE Taiwan ETF (NYSE: FLTW)
• Franklin FTSE South Korea ETF (NYSE: FLKR) |
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