In global markets, investors are charging ahead in an “everything rally” with gains spanning technology stocks, gold and cryptocurrencies, even as contradictory warning signs flash across the broader economic landscape, says Hou Wey Fook, chief investment officer at Singaporean bank DBS in his fourth-quarter investment outlook briefing.

The briefing came amid renewed trade tensions, with markets jolted after US President Trump threatened to impose 100% tariffs on Chinese goods, a move that has reignited fears of a US-China trade war and injected fresh volatility into an already uneasy environment.

The current rally, according to Hou, is being fuelled by expectations that the US Federal Reserve will move decisively into easing mode, with futures markets now pricing in as many as five rate cuts by the end of 2026.

However, this optimism, he stresses, comes in the shadow of unprecedented debt levels, with US government debt now exceeding 120% of GDP, raising serious concerns about long-term fiscal sustainability.

Meanwhile, the reintroduction of sweeping trade tariffs under Trump’s “One Big Beautiful Bill” has sent the US effective tariff rate to levels not seen since the 1930s, threatening to erode corporate profitability and suppress domestic consumption.

Long-term treasury yields, Hou points out, have risen sharply, and the US dollar has taken a notable hit, as markets begin to sense the tension between monetary policy and fiscal necessity, a scenario he refers to as “fiscal dominance”.

Still, for now, markets remain ebullient with much of this resilience attributed to the powerful narrative surrounding artificial intelligence ( AI ), which has the potential to transform business models and drive earnings well beyond levels seen in recent years. This belief is fuelling strong momentum in US tech stocks, Hou notes, helping to offset broader economic concerns.

On his sector recommendations he remains positive on technology, consumer discretionary, financials and communication services. Healthcare has been upgraded to neutral, reflecting signs of stabilizing fundamentals, better earnings visibility and improving fund flows. On the other hand, energy has been downgraded to underweight due to ongoing challenges, such as weak demand and supply imbalances.

For country recommendations Hou maintains an overweight stance on China, India, Singapore and Indonesia. This view is supported by strong long-term growth drivers, policy support and relative resilience to global economic shocks.

Stay vigilant

Even so, this rally, the DBS CIO warns, is not built on solid ground. One of the more pressing issues is the overconcentration of market gains among a handful of large technology firms.

The 10 largest companies in the S&P 500 now account for 38% of the index’s total weight, nearly double their share in 1995. Should these companies fail to deliver on high expectations, the resulting correction could be severe.

At the same time, valuations are stretched, with forward price-to-earnings ratios nearing historic highs, even though corporate earnings outside of Big Tech are already starting to soften. Tariffs are also expected to bite into margins in the coming quarters, raising the risk of earnings downgrades.

Nonetheless, the rally in risk assets, Hou believes, still has room to run, supported by the triple tailwinds of Fed rate cuts, broadly supportive macroeconomic conditions and the continued rollout of AI-driven capital investment. But he also stresses that this is not a time for investors to be complacent.

For the months ahead, he recommends a balanced and defensive stance. US equities have been shifted to a neutral weighting, though the conviction in US technology remains strong.

As well, Asia ex-Japan equities, Hou’s report highlights, are an attractive opportunity, given their valuation discount and exposure to a weaker dollar. Bonds, particularly high-quality investment-grade credit, are preferred over government debt, as they offer better returns in an environment of rising long-term yields.

Meanwhile, gold, having already surpassed US$3,400 per ounce, is expected to climb further into 2026, with DBS projecting a target of US$4,450 amid ongoing concerns over de-dollarization, geopolitical tensions and the ongoing worries over the Fed’s credibility.

While the mood may be encouraging, Hou concludes, the foundations remain fragile, and his message was clear that while investors should ride the rally, they must also stay vigilant and protect the downside.