Reflecting on the past month, Jeremy Richardson, Senior Portfolio Manager, Global Equities, RBC Global Asset Management (UK) Limited, discusses the most recent earnings season and some of the issues that investors should be thinking about as we head towards the end of the year.
Highlights:
Generally positive end to the most recent reporting season.
Continued expenditure and investment into artificial intelligence helping the U.S. to outperform global equity markets last quarter.
The full impact of tariffs could still become apparent in the last quarter of 2025 and cause disruption.
Equity investors need to keep an eye on bond markets amidst concern at the amount of government spending and the size of budget deficits.
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Hello, this is Jeremy Richardson from the RBC Global Equity Team here with another update. We've come to the end of the most recent reporting season, and generally things have been going fairly satisfactorily, I would say. One of the main themes is that we've seen a confirmation of capital expenditure and investment going into artificial intelligence, and that's been very supportive for a number of the large U.S. technology companies.
One of the main reasons why the U.S. actually slightly outperformed global equity markets last quarter. So actually, it's not a bad setup as we head now in towards the rest of the calendar year and start to turn our gaze into 2026, particularly if, as we hope to see that actually performance begins to broaden out within the equity market. And rather than just being confined to a narrow group of technology, large-cap stocks, we actually see stronger performance from a number of small mid-cap stocks from other geographies and other industries. And if that was to happen, that's actually quite a good environment for stock pickers because it increases the amount of opportunity available to us. But there are some things to just bear in mind.
One of the issues, as we head towards the rest of the last quarter of 2025 is that we haven't yet seen the full impact of tariffs. Those are still filtering through the system, although they may no longer be making so many newspaper headlines. The impact of what has previously been announced is still to feed through. And so there is a risk, that that could cause some degree of disruption, some pricing change which companies may struggle with.
Or it could impact the inflation data leading to changes in policymakers’ views. The other thing that equity investors probably need to be keeping a close eye on is the situation that we're seeing in bond markets presently and in particular, rising long bond yields. Now, this signifies a degree of concern from bond investors at the amount of government spending and the size of budget deficits.
And if governments respond to that message by fiscal consolidation, cutting their spending, then actually there are some impacts from that which might spread more broadly. One of those being that if the size of this of government spending reduces and that fiscal impetus is diminished, that may have an impact upon the corporate profit environment, particularly if it begins to impact household confidence.
On the other hand, though, if nothing is done and bond yields continue to stay elevated or rise from here, so that may have an impact on discount rates, which will negatively impact equity valuations. So, a few things there too for investors to bear in mind from a sort of more macro capital markets point of view, even though the bottom-up view from companies and industries actually seems to be reasonably supportive at the moment. I have that's been of interest, and I look forward to catching up with you again soon.