Market overview – Richard Carter, Head of Fixed Interest Research
There were no Halloween frights for the markets last week with US and UK stock benchmarks hitting new record highs. Indeed, key ingredients required to sustain the bull market were tossed into the cauldron over the course of the week. First up, a sprinkling of interest rate cuts. While the European Central Bank (ECB) and Bank of Japan (BoJ) held steady (the BoJ had been expected to raise rates), the Federal Reserve and Bank of Canada were happy to oblige with quarter point cuts. The Fed’s benchmark rate range now stands at 3.75% to 4%. Markets had expected the Fed cut but what they hadn’t priced in was chair Jay Powell pouring cold water on further reductions. Dissenters in the ranks of the rate-setting committee led Powell to warn “A further reduction of the policy rate at the December meeting is not a foregone conclusion”.
Markets took the December cut dampener in their stride, perhaps because of another key bull market ingredient – lashings of strong Q3 earnings results. The Magnificent Seven tech giants took the lead with no less than five of the seven reporting - Microsoft, Apple, Meta Platforms, Amazon and Alphabet. Amazon the stand-out after the shares put on 12% on Friday thanks, in part, to strong growth in its cloud business. Meta’s shares didn’t fare so well though with the tech giant’s US$30bn bond sale sparking artificial intelligence (AI) overspending fears.
Bond markets didn’t appear overly worried. With US$125bn of orders, Meta’s bond sale was significantly oversubscribed. The transaction attracted the largest-ever demand (in US dollar terms) for a US investment-grade corporate bond, according to the FT. At the wider market level, as of Friday morning, around two thirds of US large caps had reported results, 83% of these have been above consensus.
Next to fuel markets higher, a dollop of merger and acquisition (M&A) activity. Monday 27 October saw no fewer than US$80bn worth of deals announced – the US$63bn combination of American Water Works Company and Essential Utilities; Huntington Bancshares’ US$7.4bn takeover of Cadence Bank; and Swiss pharmaceutical group Novartis’ US$11bn deal to buy Avidity Bioscience. And 27 October was no one-off. Other recent deals include Electronic Arts being taken private for US$55bn in the largest leveraged buyout ever; and Berkshire Hathaway’s US$10bn acquisition of OxyChem.
Interest rate cuts: tick. Strong earnings: tick. M&A: tick. All that was left to throw into the bull-market cauldron, a deal between the US and China to allay global trade war fears. Step up Trump and Xi with their one-year truce (of sorts) following their meeting in South Korea. No doubt the Three Witches on Macbeth's Hillock will be reading the small print of that one closely.
Weekly economic announcements:
The MSCI All Country World Index rose 0.5% last week with year-to-date (YTD) gains now standing at 21.6%.
United States:
US stocks once again outperformed with the main equity index up 0.7% (+17.5% YTD). Growth (+1.8%) outperformed value (-0.8%) and small-cap (-1.3%) stocks. YTD the growth index is up 21.5%, almost double value’s +12.1% and small caps’ +12.4%. Mega techs’ outperformance is largely responsible for the difference, as they continue to ride the AI wave. This can be seen in market breadth indicators – the main market advanced despite seven out of 11 sectors losing ground; while an equal-weighted version of the main market underperformed the market-cap-weighted index and actually produced a negative return.
The Fed chair dampening expectations of a December rate cut saw US government bond yields across most maturities finish the week higher - the 10-year Treasury yield rose eight basis points to 4.08% (down 49 basis points YTD); while the 2-year Treasury yield was up 10 basis points at 3.58% (down 67 basis points YTD).
United Kingdom:
UK stocks were another outperformer with London’s top-tier index finishing the week up 0.7% (+22.5% YTD). A slightly lower pound against the dollar (US$1.32, down from US$1.33) helped — a weaker pound is good news for the overseas earnings of the many multinationals in the index. By contrast, more domestically focused medium-sized companies lost ground, finishing the week down 1.5% (+10.8% YTD).
The 10-year UK gilt yield ended the week 2 basis points lower at 4.41% (down 16 basis points YTD). All eyes on the next Bank of England rate-setting meeting scheduled on Thursday 6 November. Rates are currently expected to remain at 4%.
Europe ex UK:
European equities were the outlier with the MSCI Europe ex UK Index losing 0.9% (+15.3% YTD). At the national level, Germany’s main market fell 1.2% (+20.3% YTD); France was off 1.3% (+13.6% YTD); Switzerland fared worse down 2.7% (+8.8% YTD); while Italy bucked the trend finishing up 1.6% (+31.2% YTD). The ECB keeping interest rates unchanged for a third consecutive meeting wasn’t helpful. Reasons cited included inflation staying near the 2% target – a preliminary estimate for October showed annual eurozone inflation slowed to 2.1% from 2.2% in September. There was good news on the growth front – preliminary estimates indicated gross domestic product (GDP) grew 0.2% in Q3. Not a shoot-the-lights-out number but better than the 0.1% clocked up in the prior three-month period and slightly better than forecasts. Unemployment remained unchanged for the third month in a row - September’s seasonally adjusted unemployment rate came in at 6.3%. The euro depreciated, closing the week at US$1.15, down from US$1.16.
Approver: Quilter Cheviot 4 November 2025
