Key Highlights:

• Macro resilience supports growth outlook: The US economy remains strong, with GDP projected around 3% and 2026 earnings growth forecast at 12%, underpinned by solid consumption and margin expansion.
• Policy and fiscal risks create uncertainty: Concerns over Fed independence and persistent budget deficits are driving yield curve divergence and keeping long-term bond yields elevated, tempering optimism from expected rate cuts.
• Valuations look stretched: The S&P 500 trades near 24x forward P/E close to expensive levels while earnings momentum outside technology is softening, and tariffs threaten to squeeze importer margins.

US equities have staged a strong rebound since the mid-year “Liberation Day” sell-off, driven by resilient macro data and easing tariff fears. Yet as 2025 closes, investors face crosscurrents solid economic momentum on one side, and rising policy uncertainty on the other.

Macro Resilience vs Policy Risk
The US economy remains robust: Institute for Supply Management (and retail sales data show steady activity, and the Atlanta Fed projects around 3% GDP growth. Analysts expect 12% earnings growth for 2026, reflecting both revenue and margin expansion. However, political interference with the Federal Reserve including attempts to influence monetary policy has raised concerns over its independence and the dollar’s reserve status. Combined with widening fiscal deficits, these risks are keeping long-term yields elevated despite expectations of rate cuts.

Fed Easing with Limited Impact
Markets anticipate five to six rate cuts by end-2026. Yet, with fiscal concerns and market-driven long yields staying high, the traditional boost from monetary easing may be weaker this cycle.

Valuation Caution and Sector Strategy
The S&P 500 now trades at 24.3x forward P/E near expensive levels while earnings momentum outside technology is softening. Tariffs may further pressure import-heavy firms like retailers.

Selective positioning for the Fed easing phase:

• Overweight technology and communications for structural growth and resilience.
• Upgrade consumer discretionary to neutral, supported by lower borrowing costs and tax incentives.
• Downgrade energy to underweight, as oil prices likely stay subdued.
• Neutral on consumer staples, with limited upside in a growth-led rally.

Conclusion
The US market enters 4Q25 with optimism tempered by policy turbulence. For affluent investors, the key is staying invested but selective — focusing on quality growth sectors poised to thrive amid volatility.

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