Can AI keep the U.S. equity engine running?

Most countries are implementing synchronized fiscal and monetary stimulus to counteract increasing economic headwinds. China, for example, is providing solid fiscal support for technology, local governments, and housing, to mitigate the impact of tariffs and reduce reliance on U.S. demand through diversified global supply chains.

American economic dominance may not have ended, but it’s changing. Power is becoming less concentrated in one dominant player and diffused among several major actors, including the U.S., China, and Russia. The increasing competition among different models for the international order is creating wider divides between major powers and their allies.

Over the long run, U.S. equity returns are driven by a combination of earnings growth and dividend yield. In recent times, multiple expansion has played a meaningful role in its league-leading returns. While valuation alone is not a great predictor of returns, U.S. technological leadership appears priced into mega-cap valuations. If AI technology stocks fail to meet lofty expectations, U.S. equities may lose the valuation expansion tailwind that has driven recent returns.

All things considered, the current market environment calls for a disciplined and diversified approach to equities. To prepare the portfolios we manage for a wide range of potential outcomes, we maintain diversification in equities across geographies, style factors, and by balancing active and passive management.

Where applicable, our Managed Solutions continue to hold CIBC Qx Low Volatility Dividend ETFs, which is expected to smooth out equity returns amid market volatility. This approach has proven effective in managing downside risk in an environment of elevated uncertainty.