…with US markets now back to near all-time highs, much of the good news appears priced in, with little margin for error.
October was a mixed month for markets, with developed market equities rising by 2.8% and the Bloomberg Global Aggregate Bond Index falling by 0.3%. Performance was underpinned by signs of easing trade tensions between the US and China and another solid US corporate earnings season. However, the credit and securitised segments weighed on global bond markets.
Late-month trade talks between the US and China lifted global sentiment, with both sides agreeing a one-year trade deal that would pause steeper US tariffs and limit China’s export controls on rare earth minerals – a critical component in the AI supply chain. Although no formal agreement was reached, the more constructive tone marked a shift from the heightened rhetoric earlier in the month, which had triggered the largest one-day decline in US equity markets since the Liberation Day announcements in April.
In the US, inflation continued to surprise to the downside. While there was some evidence of tariff passthrough, its impact has been more moderate than many feared, and both services and rent inflation remain on a disinflationary path. The softer inflation backdrop gave the Federal Reserve (Fed) the confidence to deliver another 25 basis point (bps) cut, bringing their target range to 3.75-4.00%. However, the key development came in the press conference, where Jerome Powell cautioned that a further cut in December was not a foregone conclusion. Markets interpreted this as a signal that the Fed may pause to assess the impact of its recent actions, prompting investors to pare back expectations of further easing, with almost two 25bps cuts coming out of market pricing over the next 12 months.
Against this backdrop, growth stocks (+4.2%) extended their outperformance versus value stocks (+0.4%), buoyed by renewed enthusiasm for AI, while interest rate-sensitive sectors, such as small caps (+0.2%) and listed real estate (-1.3%), had a more challenging month.
Elsewhere, commodities posted a 2.9% gain over the month, though performance was mixed. Industrial (+4.8%) and precious metals (+3.5%) led the charge, with gold and silver up 52% and 69% year to date, respectively. This strength helped offset a weaker performance in energy (+0.7%), with crude oil down about 1.2% over the month.
Equities
Looking across equity markets, Japan’s TOPIX led performance in local currency terms. In October, Sanae Takaichi became Japan’s first female prime minister and president of the Liberal Democratic Party (LDP). As a long-time advocate of “Abenomics,” Takaichi aims to pursue expansionary fiscal and monetary policies, which the equity market is viewing as broadly positive. A weaker yen – which benefits Japanese exporters - also contributed to the gains.
The MSCI Asia ex-Japan Index rose 4.5% in October. Trade developments between the US and China were especially beneficial for Korea (+23%) and Taiwan (+10%), whose semiconductor sectors are heavily reliant on rare earth minerals and are deeply integrated into global AI and electronics manufacturing. In emerging markets, the overwhelming victory of President Javier Milei’s party in the Argentinian midterm election propelled the MSCI Argentina Index to a remarkable 64% gain for the month.
The UK FTSE All-Share rose 3.7% over the month, outperforming most developed peers. A 30bps fall in Gilt yields provided a tailwind to domestic and rate-sensitive sectors, while commodity strength supported the UK’s mining sector. A softer sterling also added to returns by boosting the value of overseas earnings.
The S&P 500 ended October up 2.3%. Early in the month, escalating US–China trade tensions over rare earth mineral export controls led to the largest daily declines in the S&P 500 and Nasdaq since April. However, late-month progress in negotiations helped the S&P 500 recover. Gains were also supported by third quarter earnings: at the end of the month 320 companies (71% of market capitalisation) had reported, with 82% having beaten consensus earnings expectations (vs 73% on average), and earnings had come in 6.4% above those expectations.
The MSCI Europe ex-UK Index rose 2.1% over the month, underperforming other developed markets. Political noise in France and limited exposure to commodities and AI-related tech saw performance lag other regions like the UK and Asia.
Fixed income
Looking across sectors, emerging market debt outperformed in October (+2.2%), supported by a combination of higher real yields and a weaker dollar. Many EM central banks began tightening well before their developed market peers, creating a meaningful rate differential that remains attractive as inflation moderates.
In credit markets, global high yield (+0.2%) outperformed investment grade (-0.1%) over the month, as higher starting yields were sufficient to offset a modest widening in spreads in both markets.
UK Gilts were the standout performer among developed government bond markets in October. The 10-year yield fell roughly 30bps, supported by a dovish shift from Bank of England Governor Andrew Bailey. Softer inflation data and a more cautious tone on growth prompted investors to increase their expectations for rate cuts next year, with markets now pricing in 60bps of cuts by the end of 2026.
Euro area government bonds (+0.9%) also did well over the month. Italy (+1.2%) and Spain (0.9%) were notable stand outs, with 10-year bond yields falling 18bps and 11bps respectively. Spreads also tightened by just over 10bps vs German Bunds.
Japanese government bonds were the worst performers over the month, with 10-year yields rising modestly as markets continue to anticipate further policy normalisation from the Bank of Japan. Expectations of a more fiscally expansive agenda under new prime minister Takaichi are also raising concerns about increased bond supply.
Conclusion
Overall, October was a broadly positive month for markets, with equities and government bonds both performing well. Early geopolitical tensions faded as late-stage US-China negotiations eased trade concerns and moderating inflation data also indicated that tariff-related passthrough has, to date, been more modest than many feared. While this is a positive development, renewed optimism has pushed US equity markets back to near all-time highs, suggesting that much of the good news is already priced in and leaving little margin for error. Against this backdrop, we continue to emphasise diversification beyond highly concentrated US markets, seeking regions and asset classes with more balanced risk-reward, while maintaining portfolio protection should inflation pressures from tariffs finally emerge.