Market overview – Richard Carter, Head of Fixed Interest Research
What a difference a week makes. One week, US stock markets are breaking records; the next they are suffering from a case of the wobbles. There are a number of potential reasons behind the flip-flopping in sentiment with artificial intelligence (AI) high up there among the chief culprits.
Just days after the AI hyper-scalers were posting Q3 earnings beats, unveiling huge capex plans and Nvidia becoming the first US$5tn company, none other than Nvidia chief Jensen Huang was claiming that China is “going to win the AI race”. As if to hammer the point home, China’s Moonshot AI promptly showcased its Kimi K2 Thinking model. Reportedly costing less than US$5m to train, Kimi K2’s appearance brought back unpleasant memories of DeepSeek’s R1 Model launch earlier in the year. That was enough to knock a cool US$600bn off Nvidia’s market capitalisation in just one session. This time round, Nvidia’s market cap fell by US$350bn, enough to fill the UK’s funding gap 10 times over.
And it wasn’t just Nvidia ruffling feathers. Questions were raised about OpenAI’s funding needs as the company’s own finance chief suggested it might seek a “backstop” from good old Uncle Sam. Another Sam, Open AI’s CEO Sam Altman, felt the need to calm nerves by posting that OpenAI does not want government guarantees. With valuations elevated, it’s easy to see how loose talk was enough to trigger a bout of market jitters, particularly as the technology sector accounts for one third of the MSCI North America Index and the top three — Nvidia, Apple and Microsoft — 20%. Global stock markets therefore were always going to find the going tough.
AI is not the only game in town, though. The US government shutdown, which had largely been bumbling along in the background, came to the fore last week. Not necessarily because it had become the longest in history – it’s now over 40 days old – but also because low-income American families might not get the food stamps they rely on. At the same time, flights across the US are being cancelled due to air traffic staffing concerns. Now no US lawmaker in their right mind would want to be blamed for spoiling the Thanksgiving Holiday celebrations of millions of families, especially with mid-term elections due in 2026. So, it ought not to have been much of a surprise that over the weekend a deal of sorts appears to have been struck in the Senate that could pave the way for the shutdown to end. Question is, would this be enough to cause yet another flip-flop in market sentiment or is the promise of the shutdown coming to an end yet more loose talk? Time will tell.
Weekly economic announcements:
The MSCI All Country World Index fell -1.5% last week with year-to-date (YTD) gains dipping below the 20% level at 19.8%.
United States:
US stocks underperformed with the main equity index off 1.6%. The YTD gain now stands at 15.6%. With mega-cap technology names in retreat, growth stocks fell -2.9% (+17.9% YTD), underperforming value which did well to finish the week flat (+12.1% YTD) - value closing the YTD gap with growth then. Stock markets were in risk-off mode, but short-term US Treasuries held up pretty well, with yields on the two-year government bond declining two basis points to 3.56% (down 68 basis points YTD). Yields on longer-term debt edged higher however - the 10-year Treasury yield closed two basis points higher at 4.10% (down 47 basis points YTD).
The ending of the government shutdown would allow government data releases to resume. For now, the market continues to rely on private sector findings such as the ADP employment report, which estimated that the private sector added 42,000 jobs during October. This ended two consecutive months of declines. Less positive was a report from consultants Challenger, Gray & Christmas indicating nearly 1.1m jobs have been cut this year through October. That would help explain a month-on-month drop of 3.3 points in the preliminary reading of The University of Michigan’s November Consumer Sentiment Index to 50.3, the lowest since June 2022. The government shutdown was given as one of the reasons for the drop.
United Kingdom:
UK large-cap stocks outperformed falling just 0.3% (+22.2% YTD). This came despite the Bank of England electing not to cut interest rates at its latest policy meeting in a tight decision and chancellor Rachel Reeves fuelling speculation that taxes will be raised in this month’s Budget. Domestic politics can have an impact on UK large caps, but the international reach of London’s blue-chip stocks means this will likely be limited. By contrast, the more domestically oriented middle end of the UK market fell -1.7% over the course of the week (+8.9% YTD).
In the UK government bond market, the 10-year UK gilt yield rose five basis points to 4.46% (down 10 basis points YTD). Sterling was unmoved at US$1.32.
Europe ex UK:
European equities outperformed but only because they fell fractionally less than their US counterparts — the MSCI Europe ex UK Index was down -1.4% (+13.6% YTD). Overall weakness was reflected at the national level. Germany’s main market was off 1.6% (+18.4% YTD), France fared worse down 2.1% (+11.2% YTD), while Italy fell by 0.6% (+30.4% YTD). Switzerland bucked the trend, closing up 0.5% (+9.4% YTD). The yield on 10-year German government bonds ticked four basis points higher to 2.67% (up 30 basis points YTD). The euro strengthened marginally against the dollar, ending the week at US$1.16 compared to US$1.15 previously.
Approver: Quilter Cheviot 11 November 2025
