Walking the walk
Given the scale of these gains, it is not too surprising that some investors are questioning its sustainability. Nvidia’s impressive earnings update is an example of these tech stocks continuing to deliver strong results. However, strong gains for Nvidia in after-hours trading were erased the following day, showing how finely balanced sentiment is around these stocks at present. Talk of questionable inventory practices was attributed by some to the sell-off, although these appear wide of the mark upon closer scrutiny.
Caution warranted
We now see risks as more evenly balanced than they were a few years ago when they were more skewed in favour of a more aggressive approach. While technology stocks are still expected to deliver higher earnings growth, the differential with the rest of the market is narrowing, putting their clear recent outperformance at risk. The current environment requires a higher degree of selectivity. We are focusing on growth at a reasonable price, not at any price, and believe that some caution should be heeded in certain areas.
US data sending mixed messages
Investor sentiment was also impacted by a seesawing in the chances of a December rate cut from the Federal Reserve. The resumption of economic data releases after the reopening of key government departments following the longest shutdown on record did little to help shine more light on the situation. US jobs data improved in the September release, but with October’s employment report cancelled and November’s not due to be released until after the next rate decision, there is little to go on. Signs of weakness can be seen in retail sales and consumer confidence numbers, but Black Friday sales showed strong demand. Total Black Friday sales rose 3% year-on-year, coming in at US$18bn. Perhaps tellingly, higher prices were solely responsible for the increase, up 7% year-on-year, while order volumes declined 1%. The fog that chair Powell alluded to as a reason to slow down rate cuts appears not to have lifted.
Insurance cuts
From a market perspective the rationale behind Fed rate decisions is arguably just as important as any changes. With mixed messages from economic data, investors would like to see a lowering of rates in the form of insurance cuts. The Fed Funds rate is already at its the lowest level since 2022, at 3.75%, but a further easing which is not necessary to prop things up would be desirable. This may seem like an exercise in semantics but can be important for sentiment. Recent comments from rate setters support this, as hints at a December rate cut despite economic uncertainty have been warmly welcomed, with US stocks posting their best weekly return in six months to close out November
Spend now, tax later (maybe)
The UK’s Autumn Budget 2025 was much anticipated, but the event itself had an almost anti-climactic feel about it. The announced £26bn in tax increases is clearly substantial, but with many of the measures not due to kick-in for a number of years — in some cases after the next election — there are no major changes in the here and now. The premature release from the OBR certainly stole some of chancellor Rachel Reeves’ thunder. In the end, the OBR’s well trailed £16bn downgrade to tax receipts that had sparked fears of increases to income tax rates was more than offset by £32bn in extra receipts, due to higher inflation and, from a tax perspective, a more favourable mix of growth (higher wages and lower profits).
Positive reaction
Ultimately, the lion’s share of the £26bn will go towards increasing the chancellor’s fiscal headroom to £22bn — more than twice the buffer given last year which, after being wiped out, led to months of speculation about further tax rises. While not large by historical standards, this additional leeway reduces the chances of unexpected additional borrowing and tax increases going forward and was welcomed by financial markets. UK government bonds rallied for one of their best budget-day returns in 20 years.
Summary
Despite some weakness during November, global equities remain on track for another strong year (MSCI All Country World Index 15%). UK stocks (MSCI UK 23.1%) and continental European shares (MSCI Europe ex UK 24.4%) have been standout performers, while the US has lagged (MSCI North America 11.9%). A fair amount of the US underperformance can be attributed to currency moves, with the GBP/USD rate down 5.7% year-to-date. At the same time, a currency appreciation has boosted returns from European shares for sterling-based investors, due to the 5.5% rise in EUR/GBP.
We remain relatively constructive on bond markets with yields at historically high levels. UK government bonds embarked on a relief rally following the Budget and by the end of November had returned 4.7% for 2025. Credit markets have seen some negative headlines in recent weeks, but spreads remain tight in public markets, especially investment grade.
