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In today’s newsletter:
British pension funds sell US stocks on AI fears
Bond investors sound alarm over next Fed chair
US stocks set for double-digit gains
UK pension funds dump US equities
Is an AI bubble on the horizon? Some of the UK’s biggest pension funds think so and are cutting back their exposure to US equities as a result.
Schemes managing more than £200bn in assets for millions of British savers told the Financial Times they had been shifting allocations to other geographical regions or adding protection against a potential fall in stock prices in recent months, write Josephine Cumbo and Mary McDougall.
The moves come as the tech-heavy Nasdaq Composite index has shot up more than 20 per cent this year — and more than doubled since early 2023 — driven by the so-called Magnificent Seven stocks such as Nvidia, Alphabet and Meta.
This has fuelled concerns about the market’s growing concentration in a small number of stocks and the risk of a bubble that could leave retirement savers exposed to a sharp sell-off.
“We recognise the specific risks associated with US equities, such as tariff measures and the concentration in large tech stocks,” said Callum Stewart, head of investment proposition at Standard Life, part of the Phoenix Group. It oversees the £36bn Sustainable Multi Asset fund serving 2mn members, where roughly 60 per cent of its equity assets are in North America.
Stewart said the fund was in the process of reducing its allocation to US stocks and was instead boosting exposure to UK and Asian markets.
The UK’s defined contribution pension sector, in which employees, typically with employer support, build individual retirement pots, is especially sensitive to potential stock market swings because younger savers are often heavily invested in US indices, which are dominated by the Magnificent Seven.
Savers 30 years from retirement typically have 70 to 80 per cent — or even 100 per cent — of their assets in global equities, with most equity allocations dominated by US Big Tech.
Bond investors sound the alarm
Bond investors have told the US Treasury they are concerned about Kevin Hassett’s potential appointment as Federal Reserve chair, worrying he will cut interest rates aggressively to please President Donald Trump.
The Treasury department solicited feedback on Hassett and other candidates in one-on-one conversations with executives at major Wall Street banks, asset management giants and other big players in the US debt market, according to several people familiar with the conversations.
The discussions took place in November, before Treasury secretary Scott Bessent held his second round of interviews with candidates to replace Jay Powell as Fed chair when his term expires in May 2026, these people said.
The Treasury said it “regularly engages with a variety of market participants and investors on important developments and dynamics in the Treasury market and broader financial markets”.
It added: “During discussions with key stakeholders, the expected distribution of market outcomes across several asset classes for the five potential Federal Reserve chairs was extremely narrow.”
Hassett, the White House’s top economic official, has emerged as a frontrunner for the position in recent weeks, as Trump and Bessent have whittled down the list of potential candidates from 11 initial contenders.
Trump on Tuesday said he planned to name his pick for Fed chair “early” next year, and signalled Hassett was a “potential” contender. The US dollar briefly slipped on the president’s mention of Hassett.
The White House told the FT that “the president will continue to nominate the most qualified individuals to the federal government and, until an announcement is made by him, any discussion about potential nominations is pointless speculation”.
Chart of the week
Wall Street banks expect US stocks to post another year of double-digit gains in 2026, defying recent investor jitters over Big Tech companies’ huge spending plans and a potential bubble in the artificial intelligence sector.
The blue-chip S&P 500 index will rise to more than 7,500 points by the end of 2026, a roughly 10 per cent increase from its current level, according to the average forecast of nine major investment banks surveyed by the FT.
The index closed on Thursday at 6,857, having hit a record high of 6,920 in October, write Rachel Rees and Jonathan Vincent.
While such gains would mark the seventh year of double-digit gains in the past eight, they would represent a slowdown from the 16.6 per cent rise so far in 2025 and the average over the past decade.
Nevertheless, the forecasts indicate a belief on Wall Street that markets have put last month’s pullback — sparked by concerns over high AI valuations — behind them, helped by President Donald Trump’s tax cuts and the prospect of interest rate cuts.
“There will be some bumps along the way, but we believe that the bull market is intact,” said analysts at Morgan Stanley, who expect the S&P to reach 7,800 by the end of next year.
Performance will be boosted by “the triumvirate of easy fiscal, monetary and regulatory policy, along with AI tailwinds”, they added, pointing to the estimated $129bn of corporate tax cuts in Trump’s “one big beautiful bill”.
Five unmissable stories this week
Investment boutique Ruffer has axed a fifth of its staff as it seeks to cut costs following a drop in profits during a difficult period for the contrarian fund manager.
Index provider MSCI has launched a global benchmark incorporating both public and private equities, as investors increasingly look to private markets to boost returns and diversify their portfolios.
Aberdeen has struck a deal to take on Stagecoach Group’s defined benefit pension scheme in one of the first agreements of its kind, which will boost the investment firm’s assets by £1.2bn.
Hedge funds and trading firms are piling into physical commodities markets in search of new sources of returns, despite lacking the decades of experience and information accumulated by established players such as Trafigura and Vitol.
Singapore’s investment giants are at risk of being left behind: Temasek and GIC are integral to the finances of the south-east Asian city-state, but recent returns have compared unfavourably with many global peers.
And finally
Gabriele Münter’s Portrait of Anna Roslund, 1917 © 2025 Artists Rights Society (ARS), New York
Gabriele Münter was at the vanguard of modern art in early 20th-century Europe. This exhibition at the Guggenheim in New York focuses on Münter’s commitment to subjects rooted in daily life, with more than 50 paintings and a series of photographs.
Gabriele Münter: Contours of a World, until April 26
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