24 November 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth

After peaking in October, the US equity market has fallen just over 5%. This is the first significant wobble in US markets since April’s “Liberation Day” sell-off. Another 4-5% fall from here would mark it as a “correction”. That’s typically when investors that had been sitting on the sidelines get tempted to buy in. Given this potential support, without a significant deterioration in the outlook for corporate earnings, further weakness in equities becomes harder to justify.

So far, this sell-off looks more technical; a chance to take some of the froth out of a good year for US equities. The latest earnings quarter isn’t pointing to a worrying weakening in corporate earnings – in fact, it’s quite the opposite. More than 80% of the top 500 publicly listed companies in the US beat consensus earnings expectations. Earnings growth for the quarter is withing touching distance of 14%. Technology was once again the star performed, but financials were a near second and only energy saw negative earnings growth.

The push back against this is that the strong Q3 earnings looks at odds with the labour market. Thursday’s belated, and partial, September labour market data was a little better than expected, but still relatively weak. On average the US economy has added 62,000 jobs a month over the last quarter. This is somewhat short of the longer-run trend of 150,000-200,000 a month.

The big spending on tech has papered over a weaker consumer this year and a harder line on immigration seems to be having an impact on labour supply. Therefore, slowing jobs growth does not translate as easily to lower rate expectations as the supply of labour is also facing headwinds. That said, the slight pick-up in the unemployment rate to 4.4% was enough for the market to get behind a December rate cut. However, the lack on any data collection during October clouds the outlook and makes it hard for the Fed to build a strong case for a rate cut.

This increased uncertainty on rates can also unsettle markets and does little to ease the current volatility. On a positive note, the market has looked this uncertainty in the eye and baked it into the outlook. High valuations in tech have also not gone unnoticed and the current modest sell-off goes a little way to addressing these.

As for the labour market, we may have to get use to a lower steady state of jobs growth through 2026. Yet, there is an argument that there has already been a period of weakness and corporate earnings managed to not just weather is, but top expectations. Despite weak consumer sentiment the market has held up well thanks to the seismic investment in AI which, based on Nvidia’s earnings call, is showing little signs of slowing. If consumer confidence picks up next year, perhaps because of the tax cuts and less trade uncertainty (with some tariffs on key food imports now being lifted), then a pick-up in the consumer could take some of the pressure away from tech to out-perform.

With this in mind, we continue diversify across sectors and geographies. We did this by edging down our US equity overweight, with the aim of improving diversification. We diversify our tech exposure to Asia, particularly towards South Korea. We also favour Japan and China. Outside of tech in the US, we have some cyclical exposure through financials and industrials because we doubt any labour market weakness will get worse from here.

But going back to the original point: could this be a healthy correction, or something more? We expect it’s the former, thanks to the resilience to corporate earnings and likely rate cut in December.