Catching the comeback: Where to invest as US equities rise

While the US exceptionalism theme of early 2025 may have proved to be short-lived, US equity markets have staged a sharp rebound of more than 30% since their early April lows, with the S&P 500 Index hitting new record highs in both August and September 2025.¹

At the same time, following a strong corporate earnings season, investors appeared to have renewed their confidence in US equities. In the month of August 2025, the iShares S&P 500 ETF (IVV) was the top gainer across iShares’ local ETF range, with $139 million in flows – only around 25% shy of the fund’s total inflows of $181 million from January to July 2025.²

Both the iShares S&P 500 (AUD Hedged) ETF (IHVV) and iShares S&P Global 100 ETF (IOO) – the latter having the highest weighting to technology across the iShares local range – were also in the top 5 iShares Australian listed ETFs on an inflow basis in August. IOO garnered $45 million in flows over the month – again, just under 30% less than its total inflows of $68 million from January to July – while IHVV attracted $53 million in flows during August.³

Investor preference for hedged US equities exposure has soared this year in the face of US dollar volatility, with IHVV attracting a total of $540 million in flows for 2025 to date – almost double the fund’s total inflows for 2024.⁴

The flow numbers mirror trends seen globally as investors pile back into the US market. Across the total ETF industry globally, US equity ETFs attracted almost US$54 billion in August – the most of any single country ETF category worldwide.⁵

Chief among the factors attracting many investors back to the US market at present is corporate earnings, which continue to be resilient even in the face of recent trade uncertainty. In the August 2025 US earnings season, 79% of companies beat analyst revenue estimates, while more than 80% beat earnings estimates – far above the historical average of around 60% of US companies that typically beat earnings consensus.⁶

Earnings growth is expected to remain robust going forward, as seen in the chart below. Not only do US earnings estimates remain above other markets, they continue to be revised up – over the last three months analyst estimates for US equity earnings have rise 1.9% on average, compared to a 1.7% decrease for emerging market equities and 0.7% decrease for Japanese shares.⁷

US earnings estimates are above all their developed market counterparts

Source: LSEG Datastream, MSCI and BlackRock Investment Institute. As of 11 September 2025. Note: The bars show the aggregate analyst 12-month forward earnings growth estimate

Of course, US equity momentum is still largely being driven by megacap tech stocks. Since 2020, less than 10 stocks within the S&P 500 have driven up to 50% of its earnings, while this year the US technology and communications sectors have delivered a 25% higher year to date return than the S&P 500 more broadly.⁸

When we look at the US economy too, it is largely technology sector expansion keeping growth alive. In 2025 to date, non-residential investment has made up more than 50% of US GDP growth – the highest percentage over the last 25 years – and taking a closer look at this spending category, we can see it is entirely made up of AI-related investment.⁹

This is because AI technology is evolving at a rapid pace, making it essential for ‘hyperscalers’ like the Magnificent 7 companies – Apple, Microsoft, NVIDIA, Amazon, Alphabet, Tesla and Meta – to invest heavily in the components needed to power new models. Typical data transfer speeds for GPUs – the specialised electronic circuits that power AI - have more than doubled from 800 gigabytes per second in late 2024 to 1.6 terabytes per second as of mid-2025.¹⁰

Tech earnings underpin US equity returns so far this year

Source: BlackRock Investment Institute/MSCI/LSEG Datastream data, September 2025. Index proxies used: A combination of the S&P 500 IT and S&P 500 Communication indexes for Technology and communications, the S&P 500 excluding the “magnificent seven” stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) for the “Large cap ex. ‘magnificent seven’” index, the S&P 500, S&P 500 equal-weighted and Russell 2000

Against this backdrop, while US equity valuations remain lofty compared to history, current outsized earnings must be factored in. Average five-year earnings for the S&P 500 were around 17% as of December 2024, with this figure expected to increase by the end of the 2025 calendar year. Compared to an average of 4.7% five-year annualised earnings over the past 150 years, it’s clear we’re in a new era of economic transformation that is being driven primarily by US tech advancement.¹¹

On a tactical basis, US macro trends also appear more supportive than earlier in the year, as interest rates begin to fall and trade deals are locked in with key partners, removing much of the uncertainty that drove volatility in markets in the first and second quarters. Following September’s Federal Reserve rate cut, markets now see the Fed funds rate at around 3% by the end of 2026¹², as soft labour data drives the central bank to consider loosening monetary policy.

As the US market becomes increasingly dominated by mega-cap stocks, ETFs present new opportunities for investors to segment their exposure to large caps versus broad equities according to their market views.

For investors bullish on large-cap tech stocks, the iShares Nasdaq Top 30 ETF (ITEK) offers a more than 50% weighting to technology and almost 70% exposure to megacaps. The index tracked by ITEK has benefitted significantly from the ongoing rally in US tech, having generated more than 30% annual returns over a 3-year timeline.¹³

Those looking for additional diversification alongside tech exposure may consider the iShares Global 100 ETF (IOO). With around a 45% weighting to technology and 80% exposure to the US, IOO offers significant access to the US-led AI theme, broadened by additional global names across other sectors including financials and communications.¹⁴ To be selected within the index tracked by IOO, all companies must generate at least 30% of revenue from outside their home region, and have at least a US$5 billion market cap.¹⁵

Technology weightings across iShares US equity ETFs

Source: BlackRock data as of 25 September 2025. Note ITEK weightings based on those of ITEK underlying fund QTOP (US) as ITEK benchmark change to Nasdaq Top 30 Index will only be effective as of 15 October 2025

Investors wanting to benefit from recent supportive economic trends across the board in the US can access 80% of the US equity market through the iShares S&P 500 ETF (IVV).¹⁶ With around a 35% weighting to technology, IVV allows investors to tap into US tech stocks as part of a broad allocation to the world’s largest economy. Both IVV and IOO also offer currency hedged options, which have outperformed so far this year as fiscal and trade concerns pushed the US dollar lower.

Ultimately, we see the AI mega force - combined with falling interest rates - continuing to push US equities ahead of their developed market peers. By making use of options across large cap stocks and the broad market, investors can build their exposure to this evolving trend as they see fit.