Global equity markets have been choppy through November, following a period of strong performance with both US and Asian indices hitting record highs. This market ‘melt-up’ had been underpinned by a benign macroeconomic backdrop, confidence about ongoing global growth, and the resumption of interest rate cuts in the US. Since the ‘Liberation Day’ tariff announcement, markets delivered six consecutive months of gains through to the end of October. However, the early-November tech sell-off reminded investors that valuations in some segments of the market look stretched with a growing debate about whether we’re entering bubble territory.

The technology sector is leading the gains, fuelled by unprecedented capital expenditure from the hyperscaler firms. Investment in datacentres and AI infrastructure is surging, with aggregate spending forecast to rise from US$153bn in 2023 to US$390bn in 2025, a staggering 60% annual growth rate. Demand for AI-related hardware and services continues to outpace supply, but for the rally to be sustained, companies will need to deliver tangible results, not just bold promises.

Recent headlines underscore this trend, with major chip supply agreements being struck between OpenAI and industry leaders like Nvidia, AMD, and Broadcom. These deals have driven tech shares higher, although some investors are questioning the sustainability of such rapid growth and the lofty valuations. Importantly, most hyperscalers are funding this investment from cash flows rather than debt, suggesting a more sustainable build-out than during the dot-com bubble. So far, market gains have been grounded in underlying earnings growth, not just speculative fervour.

The third quarter earnings season reinforced this narrative, with US corporates mostly beating expectations. Tech giants including Alphabet, Amazon, Apple, and Microsoft delivered strong results, though share price reactions varied as investor attention shifted to forward guidance, particularly around AI monetisation. Microsoft’s valuation surged to US$4 trillion following its new partnership with OpenAI, while Nvidia became the first company to hit a US$5 trillion market capitalisation. However, the divergence in share price reactions highlights that investors are now demanding credible paths to future growth.

Despite ongoing geopolitical tensions, including conflict in the Middle East and the second-longest US government shutdown in history, markets have been buoyed by progress in US-China trade negotiations. The late-October meeting between Presidents Trump and Xi resulted in a 12-month suspension of key trade restrictions and agreements on technology access and agricultural exports. While structural challenges remain, this de-escalation has been positive for risk assets.

Central banks are entering a cautious consolidation phase. The US Federal Reserve delivered another 0.25% cut in October, but Chair Powell stressed that another rate cut in December was 'not a foregone conclusion - in fact far from it', despite market pricing suggesting otherwise. The European Central Bank has largely concluded its easing cycle, while the Bank of England and Reserve Bank of Australia have paused amid sticky inflation.

Closer to home, the Reserve Bank of New Zealand (RBNZ) surprised markets with a larger-than-expected 0.50% cut in October. Another 0.25% cut in November brought the Official Cash Rate to 2.25%. The RBNZ cited spare capacity in the economy and downside inflation risks as the key drivers for the easing. These settings should help lay the groundwork for an economic recovery over the next 12–18 months. Recent company annual general meetings have reinforced a positive outlook for New Zealand equities heading into 2026. The Freightways’ CEO summed it up: “we’ve ridden into headwinds for two and a half years and it’s no longer harder to make progress.” The strong export sector should also aid in the recovery, buoyed by Fonterra’s record-high farmgate milk price of $10.16 per KgMS last season and an upcoming capital return of up to $400,000 per shareholder following the sale of its consumer business.

The RBNZ’s decision to relax Loan-to-Value Ratio restrictions from December, alongside lower mortgage rates, should lend support to a housing market that has shown early signs of renewed momentum over the past few months. In a notable leadership change, Dr Anna Breman will assume the role of RBNZ Governor in December, potentially bringing a dovish stance aligned with the current policy direction.

While global markets have enjoyed a strong run, risks persist, particularly around valuations, market concentration, and the sustainability of earnings growth. As ever, investors should focus on a well-diversified portfolio to mitigate the potential downside. For New Zealand investors, the outlook is cautiously optimistic: supportive monetary policy, improving corporate sentiment, and a strong primary sector all point to a gradual recovery.