Monthly Market Commentary - November 2025

October was a good month for financial markets, with stocks and bonds providing strong returns. Reassuring US-China trade developments and strong corporate earnings, particularly among US big tech firms, underpinned the rise in equities while lower-than-expected inflation data supported UK government bonds. The MSCI All Country World Index added 4.8% (all returns total, for October and in sterling, unless otherwise stated) on the month and gilt benchmarks returned 2.9%.

Walking the walk

There has been a lot of hype and excitement around the AI (Artificial Intelligence) trade in recent years and the latest updates from big tech companies suggest this is being backed up with impressive earnings results. This paints a pretty picture for these firms, but we are a little wary that there is seemingly a sense among large tech firms that they will either be AI winners or nowhere, leading to vast amounts being invested in AI infrastructure. Microsoft, Alphabet, Amazon and Meta are expected to post a combined US$360bn in capital expenditure in their current fiscal years and nearly US$420bn next year.

Some caution warranted

Large tech stocks were at the forefront of October’s 4.8% rise in the MSCI North America and the Mag 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) account for approximately half of the benchmark’s 12.6% return YTD. 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.

Fed cuts again but future path not so clear

The Federal Reserve (Fed) lowered interest rates by 25 basis points (0.25%) in October, taking the Fed Funds rate to 3.75%-4.0%. This was the second cut in 2025 after three cuts in 2024 as the Fed Funds rate has been lowered from 5.25%-5.50%. An end to the central bank’s balance sheet reduction was also announced, freezing the Quantitative Tightening programme that was unwinding Quantitative Easing. The Fed balance sheet is about 21% of GDP, down from its 2022 peak of 35% but still above its pre-pandemic level of 18% — and much higher than it had ever been before 2008. Arguably the main takeaway from the latest meeting was that the path ahead is less certain, with Fed chair Jay Powell saying that another cut in December was far from a foregone conclusion. “What do you do when you’re driving in the fog? You slow down,” said Powell.

Split views

The latest Fed decision contained split dissents for the first time in six years, with one voting member calling for rates to be unchanged and another calling for a larger 50 basis point cut. On the one hand the AI investment boom and stock market rally — Wall Street posted numerous record highs in October — are seen as powering spending from businesses and consumers, meaning little need for further interest rate cuts. However, on the other hand, job growth has clearly slowed in recent months and with the impact of stringent immigration policies and higher interest rates likely to have not been fully felt yet, maybe the economy needs support in the form of lower interest rates. Clarity is not helped by the ongoing government shutdown which has meant key economic data has not been published. The government shutdown is already the longest on record — 36 days and counting, at the time of writing.

Inflation data supports further BoE cuts

The Bank of England will welcome the latest inflation data, with the consumer price index holding steady at 3.8% yearon- year in October. Economists had expected an increase to 4.0%. The reading increases the chances of further rate cuts to support the economy, as the labour market is clearly weakening with another slowdown in September. Higher national insurance costs have placed a significant burden on businesses already this year, and with the Budget later this month many will likely hold off on any major hiring plans until they know with certainty whether any further changes lie ahead. The combination of weak employment and lower than forecast inflation has been good news for Gilts. The MSCI UK built on its exceptional performance so far this year, rising 4.2% in October (22.4% YTD). Gains were supported by a 2.2% depreciation in the GBP/USD exchange rate, although the pair remains 5.1% higher YTD.

Good month for gilts

UK government bonds outperformed European and US peers last month. The long end of the yield curve performed particularly well, as Gilts 15yr+ added 5.4%. The feeling that inflation may be peaking and the absence of real concerns from a debt issuance perspective heading into the Budget have helped. Gilts 15yr+ are now back in positive territory YTD (3.4%). After the recent rally Gilts (4.6% YTD), Gilts 0-5yr (4.6% YTD) and Gilts 5-15yr (5.6% YTD) are now all firmly higher for 2025. Investment grade corporates gained 2.1% on the month (6.6% YTD).

2p or not 2p? That is the question

Chancellor Rachel Reeves delivered a speech in early November paving the way for additional tax increases at the Budget later this month, refusing to rule out breaking Labour’s manifesto pledge to not raise one of the three main taxes — income tax, national insurance and value added tax (VAT). The increase in employer’s national insurance at the previous Budget in effect already breached the promise to not raise taxes on working people. There is much speculation as to what may lie ahead, but there appears to be a growing sense that income taxes will likely rise, by either 1p or 2p.

European stocks consolidate

European equities have been rangebound for a few months, as they continue  totrade around the levels seen in early summer. The MSCI Europe ex UK gained 2.8% last month and sits on an impressive YTD return of 23.4%. After the excitement of increased fiscal stimulus in the first few months of the year, market participants have taken stock of the situation, with Germany facing the potential for a third consecutive year of contraction and France grappling with an ongoing political crisis that has shaken faith in its public finances. Recent economic data points to an acceleration in the bloc and we continue to see good opportunities, noting that a period of consolidation following strong gains is quite common for markets.

Summary

With two months left to go of 2025, it’s shaping up to be another strong year for equity markets (MSCI All Country World Index up 15.9% YTD) despite a series of negative macroeconomic and geopolitical headlines. Major stock benchmarks in the UK, US and Continental Europe have all posted new record highs.

The US economy continues to grow well, bouncing back from tariff-related distortions in the first quarter to grow at an annualised rate of 3.8% in the three months to the end of June. Although the Fed have signalled a more cautious approach, they stand ready to cut rates faster should things deteriorate. UK GDP growth slowed to just 0.2% in the three months to July after a good start to the year. The UK is expected to grow 1.3% for 2025, the second fastest G7 economy after the US (2%), according to the IMF.

While we believe that AI is a potentially transformative technology and there remains considerable growth potential ahead, from an investment perspective, we now see risks as more evenly balanced than they were a couple of years ago when they were more skewed in favour of a more aggressive approach. For now, it is time to hold your nerve and stay level-headed. We are not yet in bubble territory but given how the market is beginning to raise some flags, it may be prudent to be a little more cautious at this time

Overall, we remain relatively constructive on bond markets with yields at historically high levels although the upcoming Budget and sticky inflation present potential risks. Credit markets have seen some negative headlines in recent weeks, but spreads remain tight in public markets, especially investment grade.