A summary of the latest trends in the markets (October 2025)
September was a strong month for global markets, with equities rising 3.7% and bond yields unchanged. EM Asian markets led the global equity leaderboard, rising 8%, and in particular Korea, Taiwan, and China. The U.S. dollar weakened against most foreign currencies, driven by the Fed’s rate cut and softer labor market data. Gold also had an exceptional month, climbing 10% amid ongoing geopolitical risks and central bank buying.
The U.S. labor market continues to be the central focus for investors and policymakers. In August, only 22,000 jobs were added, and JOLTS showed steady job openings and layoffs, but fewer hires and quits, reinforcing the ‘no hire, no fire’ environment. The unemployment rate remains historically low at 4.3%, reflecting a near parallel decline in both labor supply and demand. Signs of labor market weakness prompted the Fed to deliver its first rate cut in nine months, lowering the policy rate to 4.00–4.25%. The Fed remains cautious about upside risks to inflation, meaning future rate cuts are not yet guaranteed.
Lower rates have increased the opportunity cost of holding excess cash, but investors should be cautious about extending duration too far, given the rising term premium amid a deteriorating global fiscal outlook. Investing in intermediate-duration fixed income (2-3 years) can help manage reinvestment risk while providing downside protection as the yield curve is expected to steepen. The ECB and BoE kept rates unchanged, while the chances that the BoJ hikes in October are dropping. For the dollar, this could mean continued weakness as interest rate differentials shrink.
Markets continue to shift between AI optimism and skepticism, but September saw renewed enthusiasm, especially in Asia. Chinese tech stocks rallied, with the Hang Seng Tech Index posted strong gains of 14% in September, driven by policy support for domestic chipmakers and increased AI investment and new product launches. In Korea, technology gains were supported by ongoing corporate governance reforms under the new administration, helping to reduce the “Korea discount.” After 15 years of DM outperformance, adjusting EM exposure is key to capturing global AI opportunities. While chipmakers and early AI beneficiaries continue to perform well, it is also important to broaden exposure to the next wave of AI beneficiaries, like software and industrial companies.
Fed rate cuts resuming without a recession can continue to support risk assets, including U.S. equities and corporate credit. However, given high market concentration, diversifying across region is important to reduce risks such as overreliance on tech and the broad U.S. market. A selective approach is recommended for U.S. equities due to elevated valuations. Beyond technology, other sectors such as financials and utilities can continue to benefit from policy changes and AI. Intermediate duration bonds remain attractive, particularly if the U.S. labor market weakens further. Moreover, markets continue to underestimate the potential inflationary impact of tariffs. As a result, more investors are turning to real assets for inflation protection and uncorrelated returns.
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