October brought renewed uncertainty to financial markets, particularly among the large US technology companies that have driven much of the growth in global shares.
Concerns about artificial intelligence (AI) investment, company profits and interest rates have prompted investors to reassess where future returns might come from.
However, while technology shares have come under pressure, other sectors and international markets are beginning to show promise.
Our investment outlook remains cautiously positive. We believe the AI investment cycle has further to run, but investors are becoming more selective. Meanwhile, the broader economic environment remains supportive, and opportunities may be emerging across a wider range of investments.
1) Technology under pressure: Is the AI boom losing momentum?
After years of exceptional growth, investors are questioning whether the world's largest technology companies can continue delivering.
October proved challenging for several major US technology businesses, including Nvidia, Meta and Alphabet. Much of the concern centres on the enormous sums being invested in AI infrastructure, including data centres, specialist computer chips and computing capacity.
Investors are increasingly questioning whether this spending will generate sufficient profits to justify the costs. However, we believe it is premature to conclude that the AI investment boom is ending.
The development and adoption of AI remain at relatively early stages, with similarities to the expansion of broadband internet during the late 1990s. Demand for computing capacity also remains strong, suggesting that investment in the technology could continue.
Nevertheless, financial strength will become increasingly important. Companies with healthy cash flows and lower debt may be better positioned to sustain investment than those relying heavily on borrowing.
2) Beyond technology: A broader range of opportunities
For much of the past decade, a relatively small number of US technology businesses have dominated global stock market performance. However, there are encouraging signs that earnings growth is spreading to other sectors and markets outside the United States. This could represent an important shift in market leadership.
Rather than relying on a handful of technology companies, future market gains may be supported by a broader range of businesses. This development also reinforces the importance of diversification across different sectors, regions and asset classes.
We see the broadening of market leadership as a positive development, potentially creating opportunities beyond the companies that have dominated recent market returns.
3) The global economy: Reasons for cautious optimism
The economic backdrop remains broadly supportive, but inflation, interest rates and government borrowing require close monitoring.
Despite uncertainty, the global economy continues to expand, providing some support for financial markets. Government spending and central bank policies remain important influences on economic activity, although policymakers face challenges surrounding inflation and rising debt levels.
Inflation remains a key risk, particularly if price pressures persist for longer than expected. However, over the next six to twelve months, we believe inflation could ease if energy prices decline and the pace of AI infrastructure spending moderates. This could give central banks, including the US Federal Reserve, greater flexibility to reduce interest rates.
Lower borrowing costs could support economic growth and financial markets, although the timing and extent of any reductions remain uncertain.
4) Company earnings: Why profits matter more than headlines
Company earnings remain central to our outlook, with broader profit growth potentially supporting the next phase of market performance.
Strong company earnings have been a major driver of rising share prices over the past two years. Following this period of growth, investors are becoming more selective about the prices they are willing to pay for businesses.
While earnings growth may slow, we believe it could continue supporting stock markets over the coming year. Importantly, improving profitability is beginning to extend beyond the largest US technology companies.
If this trend continues, it could support investment opportunities across a wider range of sectors and international markets.
In some areas, rising profits have also made company valuations appear more reasonable.
5) Government bonds: Are opportunities improving?
Government bonds are becoming more interesting, but managing interest-rate sensitivity remains essential. After a challenging period, government bonds are beginning to offer more attractive yields.
Bonds can provide income and diversification within investment portfolios, although their prices remain sensitive to changes in interest rates and inflation. If inflation eases and central banks reduce interest rates sooner than expected, some government bonds could benefit. However, we remain cautious about longer-dated bonds, which generally experience larger price movements when interest rates change. Selecting appropriate bond maturities therefore remains important.
6) US politics: What could the elections mean for markets?
Early indications suggest that the Democrats have won control of both chambers of the US Congress, but not by enough to override a presidential veto, this creates another consideration for investors.
Changes in the balance of power in Congress could influence government spending, legislation and economic policy. A divided political environment could make significant policy changes more difficult, potentially limiting their immediate economic impact. However, the implications for financial markets remain uncertain, particularly regarding fiscal policy, energy prices and geopolitical developments.
We will continue to monitor these developments without allowing short-term political headlines to dominate investment decisions.
7) Looking ahead: Staying positive while managing risk
There are good reasons for caution. We are watching the risks closely and would adjust our investment strategy if conditions became less favourable. At the same time, it is important to look beyond short-term market moves. Our broader view remains positive, even if shares, particularly technology shares, go through a corrective phase.
Market leadership appears to be moving towards non-technology sectors and markets outside the US. We see that broadening as a positive development. Bonds are also more appropriately priced for the current economic environment, although the choice of maturity remains important. Investments linked to commodities, particularly gold, as well as real assets and inflation-protected assets, may provide ways to manage some portfolio risks. Their value can still fall, and they will not protect against every outcome.
We have made changes to portfolios over the past few months to reflect these views and will continue to review them as events unfold.
Important information:
Please note this is an opinion piece, and this document is for information purposes only and does not constitute personal financial advice. If you are unsure about whether a particular course of action is suitable for you, we recommend that you seek independent financial advice.
The value of investments and the income from them can fall as well as rise, and you may get back less than you originally invested. Past performance is not a reliable indicator of future performance. Tax treatment depends on individual circumstances and may be subject to change in the future. Tax and estate planning outcomes are not guaranteed.
Titan Wealth Planning Ltd is authorised and regulated by the Financial Conduct Authority (FCA reference number: 574458). Registered address: 101 Wigmore Street, London, W1U 1QU, United Kingdom.
