Stock market bull run – a third year of stellar annual returns?

Hello and a very warm welcome to everyone joining us today. I'm Victoria Scholar, Head of Investment here at Interactive Investor, and I’ll be hosting today’s panel on the recent stock market rally.

Thank you so much for being with us for this special session as we head towards the final months of the year — can you believe it’s nearly Christmas again, and soon into 2026? As the year draws to a close, that’s the big question we're going to try to tackle. Of course, none of us has a crystal ball, but we’re joined by some very intelligent panellists who can give us an educated perspective.

We’ll be covering some of the market trends we've seen lately, opportunities across regions and sectors, and how to position portfolios to navigate uncertainties. We're aiming to run for about 40 minutes.

We'll start by introducing our panel, then move into a discussion, followed by questions. Many of you have already sent in questions — thank you, they’ve helped shape today’s conversation. If you haven’t yet, head to slido.com and use the code 1690663. The code is also in the YouTube webinar description and there’s a QR code on screen. You have until 12:15 to send your questions. Popular questions will be prioritised, so click the thumbs-up if you see one you'd like answered.

A quick reminder: this webinar is for educational purposes only and does not constitute financial advice.

Right, let’s introduce our brilliant panellists:

• Richard Hunter, Head of Markets here at Interactive Investor, with 35+ years of experience in UK and US equities.

• Dorian Carroll, Head of Multi-Asset Income at Schroders, with expertise in convertibles and macro strategy.

• Simon Fox, Global Head of Multi-Asset Bespoke Solutions at Aberdeen, working with pension schemes, foundations, and insurers on investment portfolio design and management.

As you can tell, we've got decades of experience across many areas of the market, so we hope to answer all your questions.

Victoria Scholar: Richard, let’s start with you. The Nikkei has passed 50,000, the FTSE is near all-time highs, Wall Street has hit records, US inflation data is improving, and the US and China are close to a trade deal. What’s to worry about? In all seriousness, can you give us a sense of how markets are performing and how equities have compared to expectations this year?

Richard Hunter: Back in April, during the so-called “liberation day” and Trump’s announcement of aggressive tariffs, the effect has been fairly muted. He has dialled back many of the tariffs, and limited inflation increases meant many companies absorbed costs rather than passing them to consumers.

Easing inflation has helped the Federal Reserve, which monitors both inflation and the labour market. With inflation reasonably benign, they can focus on labour market concerns, potentially cutting interest rates to boost the economy. An interest rate cut is expected this week, with another likely in December.

In Japan, optimism has been boosted by a new prime minister with market-friendly policies. The FTSE 100 has also regained attention globally, helped by its constituents: mining stocks, defence companies, and banks. Mining benefits from high gold and silver prices, defence spending has risen due to geopolitical concerns, and banks are flush with cash, supporting higher shareholder returns through dividends and buybacks.

Every bull market climbs a “wall of worry,” so underlying concerns still exist despite record highs.

Victoria Scholar: Simon, a key discussion for investors is the potential AI bubble. Warnings have come from OpenAI, the Bank of England, IMF, and JP Morgan. If there is a sell-off, what are the risks given the concentration of gains in a handful of US stocks?

Simon Fox: In our multi-asset portfolios, we are currently leaning into equities and the rally so far. We remain constructive because the AI theme still has potential. Unlike the early 2000s, these companies are profitable, and earnings justify the price appreciation of the “Magnificent Seven.” Valuations aren’t cheap, but they are not in bubble territory, and we believe there is further room to run.

Earnings season is critical now, especially for the Magnificent Seven. Higher valuations mean higher expectations. If companies meet or exceed expectations, share prices are unlikely to suffer, but investors will watch closely for forward-looking guidance.

Victoria Scholar: Dorian, what’s your view on AI and large-cap tech valuations?

Dorian Carroll: We differentiate between mega-cap tech and AI. Mega-cap tech faces higher spending for cloud, AI infrastructure, and data centres, changing their business models. The NASDAQ trades at 130x multiples with mid-teens growth expectations, which is ambitious.

We suggest broadening AI exposure internationally, looking at Europe and emerging markets. Shifts from asset-light to asset-heavy models may pose risks in the medium term, even if optimism dominates today.

Simon Fox: Another positive is that this investment is not debt-funded. Companies have cash to recycle into growth opportunities. While these are very large numbers — around $350 billion in capex from big tech this year — it’s not infinite and will eventually taper.

Victoria Scholar: Richard, Dorian, inflation is a key concern. With the Fed expected to cut rates and US inflation easing, does that change your outlook?

Dorian Carroll: Core CPI in the US is still around 4%, double the target, even after stripping out autos and housing. Rate cuts are anticipated, potentially bringing real interest rates near zero or negative next year. Combined with tariff policy and geopolitical friction, this could be a fairly inflationary environment.

Victoria Scholar: On protecting portfolios, gold has been moving higher alongside equities. Can these trends coexist?

Simon Fox: Gold has long been a structural hedge, often compared to real yields. Central bank buying has pushed prices beyond historical financial models. While a tactical gold play is risky, a small strategic allocation remains valuable.

Dorian Carroll: Gold is one of three hedges alongside the US dollar and duration. Sizing is key; it’s part of a diversified approach rather than a speculative bet.

Victoria Scholar: The US dollar has weakened this year. How should UK investors approach currency exposure?

Simon Fox: For UK investors, leaving US equity assets unhedged provides diversification. In a global shock, the dollar can still act as a safe haven. While some institutions are hedging more, keeping partial exposure to US assets unhedged remains reasonable.

Richard Hunter: Weakness in the dollar highlights how relationships between assets — like oil, gold, and the dollar — no longer behave as predictably as before.

Victoria Scholar: Simon, what about risks in private credit markets?

Simon Fox: Private credit has grown substantially since the financial crisis, driven by banks stepping back and long-term investors stepping in. Risks exist, particularly around interdependencies and potential spillovers to banks. Currently, credit spreads are tight, and fundamentals look healthy, but it’s an area to monitor closely.

Dorian Carroll: Rapid growth in private credit, now around $3 trillion, is notable. As retail investors enter, transparency and valuations are concerns, especially where private credit intersects with banks’ off-balance-sheet lending.

Victoria Scholar: Quick outlooks as we head into 2026:

Richard Hunter: Valuations are high, but if companies continue to perform, there’s room to run. The FTSE 100 could also continue upward thanks to its diverse constituents.

Simon Fox: Opportunities exist where expectations for growth are lowest and valuations are attractive, particularly outside the US. Asia and emerging markets offer interesting prospects.

Dorian Carroll: Focus on areas with lower expectations and higher yield potential. Energy, Japan, and China provide opportunities at attractive valuations.

Victoria Scholar: Now, let’s move into Q&A.

Geographical balance question: For a multi-asset portfolio, Simon, you favour the US, Dorian, you prefer global diversification. Thoughts?

Simon Fox: We start with market-cap-based allocations, which naturally tilt towards the US. The Magnificent Seven currently drive 25% of global market cap. We also maintain exposure to emerging markets (10–15%) and then consider tactical tilts for opportunities.

Dorian Carroll: The MSCI World index is distorted by US dominance. Rebalancing to other regions creates a more rational valuation-based approach.

Victoria Scholar: On macro risks, one question is which indicators might warn of a correction, given extreme risk appetite, geopolitical issues, and stagflation?

Richard Hunter: Start with the labour market. Low hiring and low firing suggest a tightening supply of labour in the US. If payroll numbers weaken, that could affect sentiment.

Also watch credit fundamentals, such as leverage-adjusted spreads or interest coverage ratios. A big M&A cycle, particularly with AI driving activity, could create stress.

Simon Fox: Consumer sentiment surveys in the US are also useful forward-looking indicators. They aren’t definitive but can complement labour market and credit metrics.

Victoria Scholar: How should investors prepare for a market downturn? Which assets are safe havens besides gold?

Richard Hunter: It depends on your portfolio structure and the source of stress. Defensive sectors like utilities and supermarkets remain relevant. Banks, surprisingly, are also relatively defensive.

Step back from the noise: losses are only realised when you sell. A long-term, measured approach is better than hopping in and out of the markets.

Dorian Carroll: Short-dated fixed income is also a low-risk option. Using a barbell strategy, you can combine growth assets with safer fixed-income positions. European banks, trading at low multiples with high dividends and buybacks, are another option.

Victoria Scholar: What about emerging markets?

Dorian Carroll: Emerging market equities remain cheap, with realistic growth expectations above 10%. Asian convertible bonds are currently outperforming equities.

For debt, Latin America offers opportunities, particularly Brazil, Peru, and Chile. Argentina benefits from US backstops. Generally, equities in Asia and debt in Latin America provide attractive diversification.

Victoria Scholar: Any large emerging markets undervalued due to US–China trade negotiations?

Dorian Carroll: China’s economy is struggling, particularly in real estate, but areas like AI infrastructure, cloud, and e-commerce remain attractive and cheaper than US equivalents. Korea also offers opportunities in AI supply chains and shipbuilding sectors.

Simon Fox: Agreed. Focus on areas with potential growth and valuation discounts outside the US.

Victoria Scholar: Comparing bubbles historically, like the dotcom bubble or tulip mania, how does today’s AI/tech situation differ?

Richard Hunter: The key difference is cash flow and earnings. Back in 1999, many companies had no earnings. Today, AI and large-cap tech companies have strong earnings supporting price gains. Valuations may be high, but they’re not in the same bubble territory.

Simon Fox: AI could have short-term inflationary effects, such as rising electricity costs for data centres, but in the long term, it may boost productivity and be deflationary. The current price gains are fundamentally justified.

Victoria Scholar: UK equities — with worsening economic data and an unfriendly government, what’s your view?

Richard Hunter: The FTSE 100 largely represents overseas earnings — about 70%, particularly from the US. Its performance isn’t strongly tied to the UK economy.

Valuation-wise, the FTSE trades around 11x earnings, compared with 24x for the S&P 500, and dividend yields are higher (3.1% vs. 1.1%). There’s room for returns despite local economic concerns.

Victoria Scholar: What about new UK IPOs like Shawbrook and Princes? Could they signal a revival in London listings?

Richard Hunter: These are smaller companies (~£2 billion market cap). While they’re not part of the FTSE 100, they may indicate green shoots. US listings aren't always better; London offers a deep pool of liquidity and less focus on quarterly earnings.

If momentum builds, these could be the thin end of the wedge for a revival in UK IPO activity.

Victoria Scholar: Low- to medium-risk investment options aside from gold?

Dorian Carroll: Short-dated fixed income is attractive. Diversify across uncorrelated drivers like European banks, which offer high dividends and buybacks.

Simon Fox: Incorporate fixed income in a multi-asset portfolio. A barbell strategy with short-dated credit provides yields while limiting exposure to stress in longer maturities or credit markets.

Victoria Scholar: Thank you to our panel for this insightful discussion. Here are some key takeaways:

• Gold remains a small but strategic allocation.

• AI bubble concerns persist, but strong earnings underpin valuations.

• The UK market benefits from mining stocks, dividends, and global revenue exposure.

• US dollar weakness may still offer diversification advantages.

• Emerging markets and Asia provide growth and valuation opportunities.

• Portfolio defence can include short-dated fixed income, gold, and selective equities.

Thank you to Richard Hunter (Head of Markets, Interactive Investor), Simon Fox (Global Head of Multi-Asset Bespoke Solutions, Aberdeen), and Dorian Carroll (Head of Multi-Asset Income, Schroders).

The webinar replay is available, and feedback is welcomed to improve future sessions. Subscribe on YouTube for more content.