We share our latest observations on global asset markets in relation to T8 Energy Vision

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• Equity markets wobbled in November. While global equities ended the month almost unchanged, the headline performance didn’t capture a 5% intramonth draw-down as well as divergent outcomes across geographic, sector/industry and factor market segments.
• T8 Energy Vision generated a positive return for the month, materially outperforming global equities with comparable annualised volatility (a common measure of risk), continuing its year-to-date trend. Please refer to the monthly report for detail specific to the performance of the fund.
• We maintain our positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging.
• Rising electricity demand represents a compelling opportunity for investors. Being led by the boom in data centres (a secular electricity demand growth trend) and the electrification of road transport (a structural electricity demand shift), the winners will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).
• We believe that investors will not be able to get sufficient exposure to these themes via major indices and therefore a deliberate allocation to a strategy such as T8 Energy Vision should be contemplated.

Market update

Equity markets wobbled in November. While global equities ended the month almost unchanged, the headline performance didn’t capture a 5% intramonth draw-down as well as divergent outcomes across geographic, sector/industry and factor market segments. A correction which started at the end of October saw the S&P 500 fall 5.1% (peak to trough) before staging a complete recovery (V-shaped) by month end. The wobble was driven by a sudden shift in US interest rate expectations (following comments from the Federal Reserve Chair Jerome Powell that “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”) and scepticism about the outlook for artificial intelligence (AI) and the associated data centre build-out (stemming from the apparent circularity of capital investment into AI technology and a lack of cashflow positive business models at this stage of the industry’s evolution).

Looking ahead, we remain of the view that markets need to be mindful of a number of risks, including:

• elevated US debt levels;
• the unsustainably high US budget deficit;
• the likelihood that government policy exacerbates these issues (e.g. the One Big Beautiful Bill Act);
• the US Federal Reserve losing its independence;
• the US Government shutdown (which has distorted and delayed the release of vital economic data); and
• uncertainty in relation to the impacts that tariffs will have on the US and global economies (especially on inflation, employment and economic activity).

We believe that these factors create a higher risk of economic slowdown or economic stagflation (and therefore a higher risk of a short-term market correction). This, combined with US equities indices trading near to all-time highs should be motivating equity investors to be mindful of the risk profile of their portfolios.

For this reason, we favour defensive sectors such as electric utilities to which T8 Energy Vision has significant exposure. We observe that the utilities sector is benefitting from growing electricity demand in developed markets for the first time in a decade (driven by the data centre boom), which is a genuinely attractive attribute in addition to its well-known defensive characteristics.

Macroeconomic data

While the US Government shutdown ended on 12 November (making it the longest in history), it disrupted and most certainly distorted the Core Personal Consumption Expenditures Price Index and the Non-farm Payrolls Report, which are the Federal Open Market Committee (FOMC)’s preferred measures of inflation and unemployment, respectively. The disruption to this data creates a significant obstruction to gaining a clear picture of the state of the US economy and therefore the outlook for monetary policy.

Interest rate expectations

Shifting interest rate expectations was a key driver of equity market volatility during the month. Expectations for an interest rate cut at the FOMC’s December meeting oscillated wildly during the month from almost fully priced-in at the end of October to a less than 30% chance intra-month, following the comments from the chair of the US Federal Reserve at the October meeting that “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”. By the end of the month, the market was placing a 99% chance of a cut in December and a second in June 2026. We reflect that while the base case is for an interest rate cut in December, such sharp swings in expectations over a short period of time highlight the risk that the market could be blindsided which would be a short-term downside catalyst for major indices.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) weakened to 88.7 from 94.6 in the prior month (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

The response of US consumers to the tariff shocks will be an important factor which contributes to determining the trajectory of the US economy. In the short term, while the impacts are not yet fully known, we believe enough time has passed to reduce the risk of a sudden crash in consumer confidence. Acknowledging consumer confidence is believed to be driven by a combination of job security, wages, inflation and interest rates, we reflect that all of these factors remain extremely dynamic in the present environment and critical to monitor.

Market impacts

Bonds

US Treasury yields declined at the short end of the curve which reflected expectations for a US interest rate cut at the December FOMC meeting and drove gains in most bond benchmarks (Global Aggregate Bond Index +0.2%). The yield curve steepened slightly but remains neutral with the 10-year/2-year spread at 52 basis points.

We remain mindful of risk at the long end of the curve on the basis that a yield of 4.5-5% on 20-year US Treasuries may not be sufficient compensation for the risk of lending to a government with a debt level of 150% of gross domestic product and an outlook for material budget deficits for the foreseeable future.

Currencies

The US dollar weakened modestly (US Dollar Index -0.3% to 99). Looking ahead we anticipate headwinds for the US dollar driven by falling US interest rates and slowing US economic growth. We believe that questions in relation to the US currency’s role as a global safe haven (driven by investor concerns about US economic policies such as tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics) may add to the headwinds facing the US dollar by encouraging capital to diversify into other markets.

Commodities

The strong market for hard commodities continued, led by precious metals although gold (+5.9%) lagged ‘precious-industrial metals’ such as silver (+16.0%) and platinum (+6.1%). Copper (+3.3%) continues to benefit from supply disruptions at major mines, pushing the price close to all-time highs in nominal terms while the headwinds for crude oil (-2.9%) continued with the commodity experiencing a combination of weak demand and rising supply from OPEC.

Equities

Equity markets wobbled during November with US technology stocks (Nasdaq 100 Index -1.6%) and major indices in Asia under most pressure. The most notable areas of weakness in Asia were South Korea (KOSPI Index -4.4%) and Japan (NIKKEI 225 Index -4.1%). Weakness in the first half of the month gave way to a rally which saw global equities end the month more or less unchanged (MSCI World Index +0.2%).

Within the US, the weakness in the information technology sector (S&P 500 Information Technology Index -4.4%) and especially Nvidia (NVDA US -12.6%) obscured positive performances from a majority of other sectors. This was emphasised by the spread between the performance of the S&P 500 Index (+0.1%) and the equally-weighted S&P 500 Index (+1.7%).

From a factor perspective, value stocks (+2.5%) outperformed growth stocks (-1.9%) and small caps (Russell 2000 Index +0.8%) outperformed large caps (Russell 1000 Index +0.1%).

Future energy stocks

The powerful rally in future energy stocks came to a halt (Clean Energy Index -3.9%). The poor performance of the Goldman Sachs ‘highest short interest basket’ (-6.9%) indicated that stocks with high short interest were under considerable pressure (a reversal of the trend in recent months) and this might also have contributed to the weakness in the clean energy sector.

Outlook

Structural, secular and cyclical tailwinds are converging for energy stocks. Global energy demand growth is accelerating – especially in advanced economies. In 2024, electricity demand grew at roughly double the 10-year average. Electricity is booming, driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift).

We believe that electricity is the key constraint to the growth of artificial intelligence. Electricity is much more scarce than the risk capital required to fund the development of AI models and build the data centres.

The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical raw materials).

The world (and especially developed markets) needs more electricity generation. Our expectation is that this need will be met by a variety of different generation types, namely nuclear, gas and large-scale renewables. The lead time and cost of new nuclear and even gas-fired electricity generation creates a fertile environment for large-scale renewables, notwithstanding the prevailing perception to the contrary (especially Donald Trump’s ‘drill, baby, drill’ comments and open hostility towards renewables). We refer you to a short summary of our expectations for the future energy mix in the US.

Falling US interest rates (150 basis points of cuts so far in this cycle) is an additional tailwind for electric utilities and their supply chains (these industries have historically displayed very high sensitivity to interest rates).

We expect that falling US interest rates will remain a tailwind on the basis that the consensus ‘neutral’ interest rate is between 2.25% and 3.25% indicating that material further easing remains the base case.