Despite the fear that US jobs growth was deteriorating, the positive US data finally released in November were better than expected. This, along with continued strong earnings from US corporates, caused markets to rebound.
We believe this was simply a pause in hiring as corporates try to get their head around Trump’s tariff implications. If corporates were ever going to stop hiring, it would have been after Liberation Day. Job growth would therefore recover as tariff uncertainty fell. Initial claims were not pointing to an increase in laid off workers and retail sales remained robust, which would have been unusual if households were losing jobs.
Thankfully the government shutdown ended, and we received confirmation that September jobs grew. We continue to believe the job market and consumer are fine but will monitor US economic data releases this month.
Chart 1: Job growth has recovered as expected while retail sales remain robust
Source: Macrobond, Schroders Economics Group. 21 November 2025
Tariff rates fall from 17% down to 13%
As Trump’s popularity falls, we’ve seen a shift in his rhetoric. After being caught with China’s rare earth capital controls, Trump has reduced tariffs on China, including dropping the fentanyl penalty. This has brought the US effective tariff rate down from around 17% to 13%. Trump has also started to shift more populist. We have the One Big Beautiful Bill increasing fiscal spending next year, but he has also flagged a $2000 handout to consumers from the tariff windfalls. Tariffs were originally supposed to change behaviour and bring manufacturing onshore or at least help plug the fiscal deficit if not. With trade deals and cash handouts, it seems neither will be the case.
Chart 2: The US effective tariff rate has dropped down close to current levels.
Source: LSEG, Factset, Schroders Economics Group. 31 October 2025.
The US economy will likely be strong next year, with rate cuts and fiscal stimulus keeping demand buoyed. The consumer continues to remain employed, receive positive real wage growth and will likely continue spending into 2026. Corporate activity will likely also pick up after a soft patch post Liberation Day. Globally, rate cuts and an increase in fiscal stimulus should see global growth improve into 2026 as well. We therefore remain positive on the global economy overall.
What concerned us initially was the stretched valuations and positioning in US equities. While the recent sell-off was healthy, it was not large enough to improve valuations. While valuations remain stretched, trailing P/E ratios are still below the dot-com bubble and even their 2021 peak.
Earnings continue to come through above expectations and return on equity is well above historical levels. We also saw a large positioning unwind, with stretched positioning above 2 standard deviations reduced down to approximately 0.5 standard deviations.
Retail investors and systematic strategies reduced positioning and mutual funds started to increase their holdings. This is a far healthier positioning backdrop than at the start of the month. Earnings continue to beat expectations and our top-down macro model suggests earnings will remain strong into 2026.
Chart 3: US equities are rich but not as expensive as the dot-com era
Source: Macrobond, Schroders Economics Group. 21 November 2025
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