Equity Outlook: As Volatility Rises, Resist the Tactical Temptation

Global equities advanced in Q3 despite volatility driven by US economic uncertainty and a reassessment of tech giants. The US Federal Reserve’s 0.5% rate cut in September reassured markets, helping equities recover after volatility peaked in August.

While US large-caps rebounded, they underperformed European, Asia-Pacific, and emerging markets, with Chinese stocks rallying on government stimulus. Technology stocks, particularly the "Magnificent Seven," underperformed due to concerns over AI investments and high valuations, while defensive sectors like real estate and utilities outperformed.

Investors are urged to focus on long-term earnings growth, as corporate performance, rather than rate cuts, will drive equity returns. Opportunities are emerging in non-US markets and undervalued sectors, with value stocks showing signs of recovery.

Despite political uncertainty ahead of US elections, the market impact of election outcomes is expected to be minimal for long-term corporate earnings, though policy changes may affect certain sectors. Investors should maintain a diversified, long-term strategy, focusing on high-quality companies with consistent earnings potential.