Update Equities: Defence and AI momentum shape a volatile week
Equity markets experienced a volatile but ultimately resilient week as geopolitical tensions were elevated and policy uncertainty dominated. Investor attention shifted noticeably toward defence and commodity‑linked equities after US President Donald Trump called for a substantial expansion of the US defence budget to USD 1.5 trillion in 2027, triggering a broad rally across the sector.
At the same time, renewed uncertainty around the Trump administration’s stance on Venezuela and Iran, combined with concerns about political pressure on the Federal Reserve following the Justice Department’s subpoena of Fed Chair Jerome Powell, supported stronger flows into energy and metals. Gold and silver briefly reached new highs as safety was sought in hard assets before partially retracing later in the week.
Within US equities, the rotation away from mega‑cap technology persisted, although the structural artificial-intelligence (AI) theme remained firmly intact. This was underscored by TSMC’s strong earnings and its significantly upgraded capex outlook, which had an immediate spillover effect across the global semiconductor value chain. TSMC projected capital expenditures of USD 52–56 billion for 2026 - well above expectations - and signalled close to 30% sales growth in US-dollar terms, driven by extremely tight capacity and sustained AI‑related demand. The market interpreted the outlook as confirmation that the multiyear AI investment cycle remains intact, lifting sentiment across chipmakers globally.
Both TSMC and ASML moved higher following the announcement, as investors viewed the strengthened capex plan as a clear indication of robust demand for advanced manufacturing and equipment capacity. For ASML, in particular, the outlook reinforced confidence in sustained demand for cutting‑edge lithography tools, supporting a broader recovery in semiconductor‑equipment companies and highlighting Europe’s strategic role within the global AI hardware ecosystem.
Financials saw mixed performance. Large US banks delivered solid earnings driven by resilient net interest income and strong trading. However, sentiment in parts of the sector weakened as policy uncertainty increased after President Donald Trump proposed a temporary 10% cap on credit‑card interest rates, a measure that particularly pressured consumer‑credit‑exposed lenders. This added to existing regulatory noise and contributed to a dispersion of returns within the financials sector.
In the private markets segment of the financials sector, Partners Group reported a strong finish to 2025, with assets under management rising to USD 185 billion. This was slightly ahead of expectations. Full‑year fundraising rose to USD 30.2 billion, which was at the upper end of the guidance. Rising investment activity and improving realisations in the second half point to early signs that private markets are slowly re‑accelerating. These developments align with initial indications of a gradually improving backdrop within portions of global investment‑banking activities, where deal pipelines appear to be stabilising from previously subdued levels.