Macro
Global markets leaned toward a cautiously constructive tone as Washington and Beijing reached a limited truce and central-bank guidance softened slightly. The agreement eased near-term risks around tariffs and critical minerals, while monetary policy remained broadly supportive, though without a clear commitment to further cuts.
U.S.–China relations improved marginally after talks in Busan. Beijing agreed to delay new rare-earth export restrictions for one year, reducing short-term supply concerns for high-tech industries. Washington, in turn, halved the special fentanyl-linked tariff rate to 10%, bringing the estimated average tariff on Chinese imports to the mid-40s. Both sides described the outcome as pragmatic rather than transformative, with plans for another meeting in April. Importantly, there was no change to current restrictions on advanced AI chips, which remain a central point of strategic friction.
Monetary policy continued to provide a tailwind for markets, though policymakers were growing cautious. The Federal Reserve cut rates by 25 bps to a range of 3.75–4.0% and confirmed that quantitative tightening will end in December. Chair Jerome Powell warned that another cut in December is “not a foregone conclusion,” signalling a more data-driven approach ahead. Markets trimmed near-term easing expectations but still anticipate a gradual rate reduction through 2026. The European Central Bank held policy steady as Eurozone growth surprised slightly to the upside, while the Bank of Canada and several Gulf and Asian central banks eased modestly in response to improving liquidity conditions.
Economic data from Europe suggested that momentum is stabilising. Euro-area GDP grew 0.2% QoQ in the third quarter, supported by stronger investment and a smaller drag from trade. France posted the best performance, while Germany and Italy remained flat, indicating a patchy but improving recovery.
Rates
Treasury markets traded steadily but ended their longest winning streak since March as investors reassessed the policy outlook following Chair Powell’s caution that a December rate cut is “far from” certain. Financial conditions remain loose, yet the path of future easing has become less clear. Yields finished the week modestly higher, led by the front end, while the 10-year yield climbed about 8 bps to 4.09%, trimming its monthly decline to roughly 6 bps. The curve flattened slightly as traders adjusted rate expectations rather than positioning for a major shift in outlook.
The October FOMC meeting delivered a 25 bps cut, as anticipated, but featured notable dissent within the committee. Governor Miran pushed for a 50 bps move, while St. Louis Fed’s Schmid preferred no change, highlighting emerging divisions over the pace of easing. The Fed also confirmed that quantitative tightening will end on December 1, a preemptive step to stabilise short-term funding markets amid rising repo facility usage and elevated bill issuance.
Powell’s post-meeting remarks prompted a swift repricing across futures and swaps. Traders now assign roughly a 62% probability to a December cut, down from 90% before the meeting, with about 70 bps of total easing expected through 2026, 6 bps less than a week ago. Contracts tied to the December 9–10 meeting show odds barely above 50%, underscoring uncertainty around the near-term path. The 2-year yield rose to its highest level in a month as expectations for continued policy easing were pared back.
The challenge for investors has been compounded by the ongoing government shutdown, which has delayed official data releases. In the absence of federal reports, market participants are turning to private indicators such as ISM manufacturing and services surveys, ADP employment figures, and state-level jobless claims to gauge economic momentum. The upcoming Treasury refunding announcement will also be closely watched for guidance on issuance patterns and funding strategy.
Several Fed officials have reinforced a more hawkish tone since the meeting. Kansas City’s Schmid defended his dissent, citing ongoing inflation pressures and solid economic momentum. At the same time, Dallas Fed’s Logan and Cleveland’s Hammack both noted that another cut would require more unmistakable evidence of softening in either inflation or employment.
Excluding tariff-related effects, inflation remains on a gradual path toward 2%, while labour data suggest incremental cooling. Markets continue to price in one more reduction by year-end, followed by a pause through early 2026. Policymakers remain divided: some, such as Atlanta’s Raphael Bostic, argue that rates are already near neutral, while others support additional insurance cuts to cushion the labour market.
Overall, the rates market remains supported by steady growth, moderating inflation, and abundant liquidity. Yet with Fed communication turning more data-dependent and visibility clouded by missing economic reports, investors are staying defensive and favouring the short end of the curve until policy direction becomes clearer.
Credit
Credit markets ended the week on a firm footing as liquidity conditions improved and investors absorbed record corporate issuance led by Meta’s landmark $30 billion bond sale. While the Fed’s tapering of quantitative tightening drew attention, spreads remained tight, reflecting strong demand for high-quality credit even amid broader macro uncertainty.
Meta’s jumbo offering dominated primary activity, attracting $125 billion in orders and pushing total October investment-grade issuance to a record $132 billion. Other notable deals included HSBC and Philip Morris, underscoring strong investor appetite despite rising macro uncertainty. The contrast between Meta’s stock decline and the overwhelming demand for its bonds highlighted investors’ preference for stable, cash-generative issuers over long-duration growth risk.
High-yield issuance slowed to about $18 billion in October, the lowest since April, as investors turned more selective. Spreads in lower-rated credits remain wider, reflecting persistent concerns about weaker borrowers’ refinancing capacity if growth softens. However, double-B and investment-grade names continue to trade near the year’s tightest levels as investors favour “safe carry” over yield chasing.
Private credit remained a focus of debate, with several market participants, including Goldman Sachs’ David Solomon, dismissing fears of hidden systemic risk. Most analysts characterised recent loan losses and fraud cases as isolated rather than symptomatic of broader stress. Defaults are edging higher but from historically low levels, and credit conditions remain supported by steady economic activity and ample liquidity.
Private credit’s growing use of payment-in-kind (PIK) loans is emerging as a warning sign of deeper strain in a market long viewed as resilient. Initially meant to give borrowers temporary relief from high interest costs, PIK now often serves to postpone cash payments and conceal stress. Valuation firms treat this so-called “bad PIK” as a shadow default, and its share price has tripled since 2021. A string of recent loan failures and a surge in amendments to avoid defaults point to weaker underwriting and limited transparency across direct-lending portfolios.
While PIK can help companies invest in growth, much of today’s issuance reflects cash flow pressure and elevated leverage from loans originated during the low-rate boom. Roughly one-third of mid-market borrowers show signs of distress, and close to 40% have negative free cash flow, relying on compounding obligations at high-teen yields. As deferred interest accumulates, the line between short-term relief and long-term solvency risk is blurring, suggesting private credit’s stability may rest on increasingly fragile foundations.
The tone across credit markets remains cautiously constructive. Demand for high-quality issuers is strong, liquidity conditions are improving, and the absence of significant macro shocks continues to support tight spreads. However, investors remain alert to concentration risk from heavy corporate capex in artificial intelligence and technology infrastructure, as well as to the eventual turning point in the credit cycle once growth momentum fades.
Equities
U.S. equities extended their winning streak, with the S&P 500 (+0.71%) and Nasdaq (+2.24%) posting a third consecutive weekly gain, while the Dow rose 0.75%. For October as a whole, the Dow gained 2.51%, the S&P 500 rose 2.27%, the Nasdaq advanced 4.70%, and the Russell 2000 added 1.76%. Both the S&P and Russell 2000 achieved their sixth consecutive monthly gain, while the Nasdaq recorded its seventh. However, gains remained concentrated in larger-cap names, with the equal-weight S&P 500 underperforming the official index by 320 basis points and ending the month slightly lower. Market momentum stayed firmly anchored in large-cap growth, supported by optimism around artificial intelligence and a solid earnings backdrop. Gains were concentrated in technology and consumer names tied to AI, digital infrastructure, and automation, while cyclical industries also attracted interest as investors positioned for a steady economic outlook. In contrast, defensive and rate-sensitive sectors continued to lose favour amid higher funding costs and limited pricing power.
Sector performance remained uneven, both for the month and the latest week. In October, Information Technology (+6.2%), Health Care (+3.5%), and Consumer Discretionary (+2.4%) led the market, while Materials (-5.1%), Financials (-2.9%), and Real Estate (-2.7%) underperformed. Consumer Staples (-2.6%), Energy (-1.2%), and Utilities (+2.3%) also lagged modestly, while Industrials (+0.4%) and Communication Services (+1.7%) posted limited gains.
Over the past week, leadership again centered on growth-oriented groups, with Technology (+2.98%) and Consumer Discretionary (+2.77%) advancing, followed by Financials (+1.48%) and Industrials (+0.08%). Defensive sectors were weaker, led by Real Estate (-3.91%), Materials (-3.71%), and Consumer Staples (-3.66%), while Utilities (-2.56%) and Health Care (-1.24%) also declined as investors rotated further toward cyclical and growth exposures.
Earnings season remained strong overall, with S&P 500 profits growing by more than 10% YoY and a historically high beat rate exceeding 80%. Roughly 63% of companies have now reported results, representing 317 S&P 500 constituents and nearly 70% of total market capitalisation. Earnings growth for the third quarter is running near 8% year over year, showing a mild deceleration from earlier this year but still well above expectations. The frequency of earnings beats has been unusually high outside the pandemic period, driven by both stronger sales and expanding margins. Technology names once again dominated headlines, as cloud and AI infrastructure spending surprised on the upside, helping offset valuation concerns that had surfaced earlier in the quarter. Company guidance and analyst revisions remain constructive, with management commentary emphasising capital discipline, labour efficiency, and accelerating AI-related investment. Mega-cap technology firms continue to drive capital expenditure trends, while banks and industrials face closer scrutiny on lending standards and credit quality.
Corporate developments highlighted the unprecedented scale of the AI boom. Nvidia’s valuation surpassed $5 trillion this week, making it larger than Germany’s GDP and accounting for nearly 9% of the total market capitalisation of the S&P 500. The company’s ascent has become symbolic of the “AI effect,” lifting valuations across semiconductors, hardware, and industrial infrastructure. Nvidia’s momentum continues to ripple across the supply chain, from chip equipment makers like Advantest and Lasertec to power and cooling specialists such as Vertiv, Eaton, and nVent Electric. Apple and Microsoft both reached $4 trillion in market value, and Amazon rose 13% after its latest results showed continued strength in cloud demand and data centre expansion. Amazon alone has added nearly 3.8 gigawatts of computing power this year, equivalent to the electricity consumption of almost 3 million U.S. homes, underscoring how digital infrastructure has become a driver of both market growth and energy demand. The rapid scaling of data centres has already influenced power markets, prompting renewed investment in nuclear generation and next-generation technologies such as small modular reactors. One example: Oklo, a nuclear start-up backed by OpenAI’s Sam Altman, now has a valuation above $20 billion despite not yet generating revenue. Altogether, U.S. corporate spending on AI infrastructure is estimated to exceed $400 billion this year, reflecting both extraordinary ambition and rising interdependence between digital and physical economies.
Equity sentiment remains constructive but increasingly narrow. The “oligarchy” of the AI boom has pushed valuations of mega-cap leaders to decade highs, leaving the broader market heavily dependent on a small cluster of stocks. The Bloomberg AI Index now shows the widest valuation gap on record between its market- and equal-weighted components, reflecting concentrated capital flows and rising volatility. The Magnificent 7 remain the S&P 500’s centre of gravity, powering index gains while amplifying vulnerability to earnings surprises. Meta’s recent decline, despite solid results, illustrated this asymmetry. Historically, the group tends to recover as the reporting season unfolds, but their growing dominance means market direction remains tightly bound to their performance. With earnings growth intact and liquidity conditions supportive, investors appear comfortable maintaining equity exposure into year-end. Still, stretched valuations and concentration risk leave the market sensitive to any reversal in the AI narrative or renewed macro volatility.
As 2025 nears its end, over 80% of active managers remain behind their benchmarks, setting the stage for a late-year performance chase. After months of caution over inflation and rates, bearish sentiment is finally breaking as investors rush to increase equity exposure. Positioning remains light, liquidity is improving, and November’s strong historical record adds a seasonal tailwind. Together, these factors point to a favourable setup for a year-end rally, driven by improving sentiment and the fear of being left behind.