US market volatility: AI tech boom, government shutdown, Fed policy and elections

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Investments can go up and down in value, so you could get back less than you invest.

Full podcast episode transcript

[0:10] Emma Wall: Hello and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I’m Emma Wall – Chief Investment Strategist.

[0:16] Sarah Coles: And I’m Sarah Coles – Head of Personal Finance.

We are covering investments, this particular week – and there is an awful lot to cover. There has been a lot of noise in the markets, particularly around the US. Now, obviously, there’s rarely a quiet moment, but has been particularly loud recently.

So, there’s been some disquiet about the direction that markets was taking – and, obviously, a huge amount of volatility. So, we wanted to go into more detail with a ‘US Special’ – so that’s gonna be looking at some of the discussions around AI as well as the government shutdown, the elections, and the latest from the Fed.

So, I guess, we should go to the ‘Big wobble’ that happened in the markets – so can you tell me what happened and why?

[0:49] Emma Wall: So, it’s very difficult to put a single reason on what happened. There are macro factors – by which I mean politics, economics – and there are micro factors, by which I mean bottom-up – so stock-specific stories.

Let’s start with one of the biggest catalysts – and that is AI valuation – so AI stock valuations. I mean, this has been an incredible rally over the last five years, really – with some volatility along the way – but the ‘Magnificent 7’ stocks, as we call them, have had significant returns. So much so, that we are beginning to be worried – and I say, ‘We,’ because, at HL, we do think these valuations are looking toppy – but also, the market, in more general, is beginning to be worried.

So, you had two major Wall Street chiefs – the CEO of Goldman Sachs and Morgan Stanley both coming out at a forum – I believe, held in Hong Kong – saying that AI valuations are looking toppy – I think they said, ‘Full,’ as a euphemism – basically, we could be in a bubble. And one of them even said that this could be, potentially, the beginning of between a 10% and 15% pullback in the market. And, because AI valuations have so driven the broader market performance... when they look at them, they think it’s not just the AI valuations that are toppy – and, therefore, could pull back – but it could cause a wider market downturn. And, as we speak, actually, the market looks reasonably sanguine – it’s come up from the lows. But, since we last spoke – since we last did this podcast – there has been a significant pullback, wiping off tens of billions in terms of valuations – specifically from tech stocks, globally – because, of course, when the US sneezes, the rest of the world catches a cold. So, you saw valuations dip, not just in the US, but across Asia – where you’ve got quite a lot of tech growth stocks – but also then across Europe as well.

So, that was the micro story – and then there’s the macro as well, which I’m sure we’ll come onto.

[2:39] Sarah Cole: Yes – I mean, one of the things I wanted to ask you about, actually... So, when you get to the point where valuations are looking toppy, that, in itself, is obviously a huge calculation that is made by people like yourself, but how does that then translate into something happening to the share price?

Is it purely that people hear this information and go, ‘Ooh, better take my profits now,’ or is there something else at work here?

[2:57] Emma Wall: There’s a few different things that could be happening – one of them is just about sentiment.

So, one of the things that drives markets is something called ‘Momentum’ – which is, despite how much we say to people, ‘Past performance is no guarantee of future returns,’ people get excited about what has happened before – and they, therefore, forecast that it’s gonna happen in the future – which is not a very good thing to do in markets because markets have a way of teaching you a lesson when you do that, but momentum does last for a while.

So, sometimes, it’s about the fact that, actually, a stock has done very well – and then, actually, when you get datapoints that suggest that won’t continue... because it’s been a sentiment-driven rally, that sentiment changes and the share price falls. So, sometimes, it’s just about sentiment.

Other times, it’s about, actually, when someone has forecast something specific – so a very specific calculation from a Chief Financial Officer or a Chief Executive Officer around maybe revenues, earnings, orders – and we saw this, for example... let’s use an example like the pandemic. If you were a company that relied on demand from households – and then those households, across the globe, radically changed the way that they operate – because we all stayed at home, and we just did everything through ecommerce – then those forecasts that you had, although they were based on good data, were incorrect.

So, sort of two ways – so for the data-based, where things don’t come off the way that people expect them to, or there’s the sentiment-driven. But, ultimately, the market has found that, actually, the valuation it was placing on a stock is not accurate.

[4:22] Sarah Coles: You mentioned the bigger picture – so I’m thinking, obviously, the giant elephant in the room is the US shutdown – which, at time of recording, is still ongoing.

[4:29] Emma Wall: It is – we’re on day 42, on day of recording – and is now, therefore, the longest ever US shutdown. But, actually, there are some glimmers of hope – which is part of the reason why the stock market has actually been more buoyant over the last 24 hours and since the beginning of the week.

Now, actually, what’s really interesting here is... one of the reasons they were in a deadlock around proving this budget in the US was around healthcare – and, again, we might come onto this in a bit. There has been an ‘Odd year’ – as they call them – an odd-year election in the US, with some mayoral seats up for grabs – including the most important and significant, the one of New York – in which the Democrats absolutely wiped the floor with the Republicans. And, therefore, it’s quite interesting and unexpected that the reason why we look like we’re having a resolution around the shutdown is, actually, the Democrats capitulated – or they’ve compromised in delivering what the Republicans were asking for.

So, that’s a bit of a surprise – the market wasn’t expecting that – given the fact that they were on this positive post-odd-year election high – but, actually, there is some resolution because the Democrats have met the Republicans where they wanted to be around healthcare funding, and so it does look like – potentially, I think... The last time I checked, it was a 90% resolution, this week, of the shutdown – but it has been record-breaking – but that’s the macro as well in the background.

So, a little bit optimistic, as we talk – but, over the last couple of weeks, it has definitely weighed on markets.

[5:52] Sarah Coles: Sure – and you mentioned those elections... I was actually in New York just in the run up to the elections, and I was astonished by the attacks ads – I’ve literally never seen anything like it. It’s pretty much just a little bit shy of a fist-fight, but can you take me through what those elections mean for markets?

[6:07] Emma Wall: Yeah – so there’s a couple of things here. Firstly, as anyone who’s interested in politics, globally... very much – you know, a year ago, Democrats were down and out – in fact, there’s some irony in the fact that the results from the mayoral elections came exactly a year after Donald Trump was elected US President – or re-elected US President, we should say. But what’s interesting... let’s take the New York Mayor as the example – because this is the one that had the potential for the biggest impact on markets. He was, very much, not the favourite of Wall Street – or even of Main Street.

So, if you looked – because all of this stuff is public in the US – at who had been backing his campaign... actually, high-profile billionaires – and families of billionaires – were backing his competitors... were either backing Cuomo or other Republican candidates – and that is because they were seen to be more pro-commerce. And Zohran Mamdani – so he’s the one who’s the Mayor-Elect... his policies are actually seen to be not positive for New York. So, actually, I think what investors are hoping is that he relaxes some of those now he’s been elected – now that he’s in the seat and he won’t be quite as radical – that some of the things he was suggesting would, they say, impact New York’s ability to be competitive – as a financial centre of the world – but we shall see.

[7:20] Sarah Coles: So, that’s one great unknown that’s entered the fray – but, I guess, another big part of the picture, in the US, is what the Federal Reserve is up to.

So, they have made a big decision – can you just tell us how the markets are reacting to it?

[7:30] Emma Wall: I love that segue – where you said, ‘From one unknown.’ I was hoping you were gonna say, ‘To another’ – because, ...

[7:34] Sarah Coles: [Laughs]

[7:34] Emma Wall: ...although, actually, the Fed cut that we’ve had was much anticipated by the markets, where we go from here is very much not.

So, I’ve been spending this week with the Investment Analysis Team, talking about our forecasting for next year – and I have to say, this is probably the most difficult year that we have ever had to conduct this exercise, and we’ve been spending a lot of time thinking about fixed income – and, actually, where both the Bank of England and also the Fed, in the US, goes from here in terms of rates.

The market is very much expecting multiple cuts next year – we think it’s much more on a knife-edge. We haven’t had any data out of the US for 42 days – so the shutdown – and the Fed’s decisions are so data-based, that, actually, forecasting where we go from here is really difficult.

We haven’t had any jobs fix – we haven’t had any inflation data – and those are the two really key datapoints to understand what happens for interest rate policy from here.

So, yes – the Fed cut rates, very much expected, but where we go from there will be a real balance of growth, and the jobs market, and inflation before they make a decision.

[8:42] Sarah Coles: So, when you talk about the whole picture, it’s really easy to see why volatility has been the watch-word, really, for the US.

So, in this kind of environment, what sort of things can investors do?

[8:51] Emma Wall: I think it’s really important to say... although there has been quite a lot of volatility over the last month, actually, the US market has done well for the majority of people who have owned it over the last five years. And so, what we’re saying now is, ‘Could this be an opportunity for you to take some gains, and actually reinvest those in other areas of the market – and just rebalance your portfolio?’

The US makes up a sizeable part of global markets – you should always have some allocation to the US. But, actually, where investments have done well... trimming those and allocating towards parts of the market that are better value – and which we think the UK, Europe, and emerging markets are better value than the US... It’s a chance to rebalance – it’s a chance to diversify across sectors, geographies, asset classes – and make sure your portfolio is as resilient as possible, going into the next year.

[9:39] Sarah Coles: That’s fantastic – it’s always good to end on something positive people can do.

So, before we go, we always do like to, randomly, throw a fact at you and make you guess something completely impossible. So, this time, we’ve gone back to New York – ‘cause there’s loads of fun New-York facts.

So, in the great discovery of New York that I did whilst I was looking this up, I discovered that Manhattan’s actually 23 square miles, but home to 1.59 million people – which is quite impressive. And so, unsurprisingly, they pay an average of $4,200 per month for a one-bedroom apartment.

[10:06] Emma Wall: Well, I used to live in Hong Kong – so...

[10:08] Sarah Coles: [Laughs]

[10:08] Emma Wall: ...both population density and high rates... I have to say, Hong Kong does slightly tip it from New York, but...

[10:15] Sarah Coles: [Laughs]

[10:15] Emma Wall: ...continue! [Laughs]

[10:17] Sarah Coles: So, my other great fact was that, across the whole of New York City, the average age is just under 39 – which is slightly less than the national average – but is it home to more men and boys or more women and girls?

[10:29] Emma Wall: So, I think this is gonna be one of those urban myths, where you think that there are more men – because of the image of Wall Street and suits – but I bet there’s actually more women.

[10:38] Sarah Coles: You’re absolutely right – there are... obviously not, as you say, walking down Wall Street.

[10:41] Emma Wall: Gonna be less visible, sadly!

[10:43] Sarah Coles: [Laughs] Yeah – yes, possibly. Obviously, it’s the whole of New York City, so it’s not just the...

[10:48] Emma Wall: Not just the wolfs on Wall Street.

[10:50] Sarah Coles: Exactly – the male and pale of Wall Street.

So, that’s all from us this week – but, before we go, we should say this was recorded on November 11^th 2025, and all information was correct at the time of recording.

[10:59] Emma Wall: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments rise and fall in value, so you could get back less than you invest – and past performance is never a guide to the future.

[11:09] Sarah Coles: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present, or future value, or price of any investment, and investors should form their own view on any proposed investment.

So, all that’s left is for us to thank our Producer, Elizabeth Hotson.

[11:21] Emma Wall: And to thank you, very much, for listening. Until next time.

[11:23] Sarah Coles: Goodbye!

[11:24] Emma Wall: ...goodbye!