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Market Signals: November Global Equity Brief

2025-11-11

Jordan McCall, CFA

Jordan McCall, CFA

Portfolio Manager




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Key takeaways

  • Large-cap growth stocks remain the main driver of global equity returns amid ongoing AI investment.
  • We believe sustained earnings growth will be key to validating high valuations in the AI sector.
  • Looking ahead, investors may benefit from focusing on high-quality, diversified exposures as global growth shows signs of moderation.

AI leadership shows few signs of slowing

Large-cap growth stocks extended their lead in October, powered by continued optimism around artificial intelligence. The MSCI World Index gained 2%, with the largest technology names again accounting for much of the advance. The spread between the smallest and largest stocks in the index was wide (again), underscoring concentrated leadership.

Looking ahead, we see AI investment likely broadening beyond the current leaders as enterprises expand adoption across sectors. Corporate commitments to hardware, cloud infrastructure, and data systems suggest the AI buildout is still in its early stages. This ongoing capital formation could continue to shape market dynamics into 2026, especially as companies seek to convert innovation spending into measurable productivity gains.

Is there an AI bubble? The evidence is still mixed

Speculation has naturally followed the extraordinary performance of AI-linked equities. While valuations are rich in several areas, earnings momentum continues to underpin investor confidence. The next phase may test the sustainability of this narrative—particularly as markets begin to differentiate between genuine innovators and those priced for perfection.

We believe AI-related spending is likely to remain a structural feature of corporate strategy in the tech sector, even if the pace normalizes. In the near future, AI investments will have to show meaningful returns on investment.  At which point profitability, scalability, and sustainable cash flows will determine which firms sustain leadership. In our view, this shift from enthusiasm to execution could define the next leg of the AI cycle—one where fundamentals, not headlines, drive performance.

Beyond AI: Slowing growth and a quality focus

Beyond the technology complex, we expect global growth to continue moderating into 2026. The labor market remains a key watchpoint, with forward indicators pointing to slower demand and cautious corporate investment. Inflation persistence is keeping central banks attentive, with policy calibration likely to remain a key variable for equity markets.

Against this backdrop, we see investors leaning toward high-quality companies with resilient earnings and conservative balance sheets. We believe portfolios are best positioned toward businesses with the ability to generate steady cash flows across cycles. As the macro environment cools, diversification across styles, sectors, and regions may help investors capture selective upside without overexposure to any single theme.

Investor implications

AI remains a defining force in global equities, and we believe its influence will extend well into the next market cycle, for better or worse. Extreme market concentration risk and evolving macro conditions call for balance. We believe investors may benefit from maintaining exposure to innovation while reinforcing portfolio resilience through diversification and quality. In our view, a forward-looking approach—anchored in fundamentals—offers the best path to participate in growth while preparing for change.

Important information pertaining to the hypothetical example: Past performance does not predict future returns. Return level is proportionately scaled in line with cash level to be overlaid. Source: Russell Investments. Assumptions: Average cash level 1.0%, 10-year history from 12/31/2023, gross of fees. Opportunity cost from not securitizing cash varies by asset allocation and time period, and is represented by horizontal bars as marked within the chart legend. Target asset allocation used: 0% cash, 74% MSCI World, 26% Global Aggregate (GBP Hedged). For illustrative purposes only. Does not represent any actual investment. Indexes are unmanaged and cannot be invested in directly. Performance benefit (net) of overlaying cash by last 5 individual calendar year is as follows:  2023:20 bps, 2022:-17bps, 2021:16bps, 2020:14bps, 2019:23bps.

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