Investment Update October 2025
- ABP Team
- 5 days ago
- 5 min read
Updated: 2 days ago
Key Highlights:
US equity markets recorded their best September since 2010, with the S&P 500 rising 3.5% and the Nasdaq gaining 5.6%.
The Federal Reserve delivered its first rate cut in 2025, citing labour market weakness and moderating inflation.
Gross Domestic Product (GDP) growth was revised higher to 3.8%, with data suggesting further strength in upcoming releases.
Concentration risk persists in the S&P 500, with ~40% linked to AI and hyperscaler firms.
Treasury yields diverged, with the 10-year yield hovering around 4% and potential Yield Curve Control at 4.15%.
Tariffs were noted as a potential inflation risk, though money supply growth and fiscal dominance were identified as longer-term drivers.
Money supply growth is emerging globally as a driver of inflation, shaped by fiscal dominance, and creating risks of currency debasement and weaker purchasing power.
European markets posted their strongest September in six years, while long-dated government bonds faced volatility due to fiscal pressures and political tensions.
FTSE 100 gained 1.23% for the month, while UK 30-year gilt yields surged to their highest since 1998, reflecting sticky inflation and fiscal concerns.
China’s equities advanced to decade highs amid AI-driven gains and policy support, despite property and employment concerns.
Emerging markets surged nearly 7%, extending a nine-month rally, the longest since 2004.
In Japan, Prime Minister Ishiba’s resignation drove equities higher, with the Nikkei 225 up 1.45% and the Topix at a record high, while 30-year yields reached 3.285%.
At portfolio level, positioning remains risk-on, with adjustments including reduced exposure to longer-duration gilt funds, revised commodity allocations, and cost savings from preferential share classes.
September is typically a month of higher equity market volatility and worrisome data before the market settles back into a positive mood towards year-end. As the saying goes – this time it was a little different. We explore the drivers and project our gaze to the investment horizon, as ever, in the update that follows.
US equity markets defied seasonal expectations in September 2025, delivering one of the strongest monthly performances in over a decade. The S&P 500 surged 3.5%, while the Nasdaq soared 5.6% — both marking their best September since 2010. Our price target for the S&P 500 remains 7400 and this feels achievable as performance breaks bullishly beyond its growth channel. Investor optimism was fuelled by the Federal Reserve’s first rate cut of the year, robust corporate earnings, and renewed enthusiasm around artificial intelligence. Chair Powell and the Federal Reserve remain concerned about labour market conditions, particularly lower quits and hiring rates – one of the key factors behind the recent rate cut. The latest data suggests a weakening jobs trend, which could support another rate cut in October. Economic growth remains robust with GDP data being revised higher to 3.8% (real) and projecting higher still in latest GDPNow releases. Quarter 3 earnings reports kick-off in coming weeks which will be instructive to markets. Concentration risk persists within the S&P 500, with ~40% of the index tied to AI and “hyperscaler” firms, which are currently capital-expenditure heavy and may face earnings pressure later in the cycle.
The chart below, courtesy of research partners, GMI, shows the interconnectedness of technology stocks and the provision of market liquidity.
Graph 1. GMI Total Liquidity Index ($BN, X-Axis) vs NASDAQ 100 (Y-Axis) – Weekly 2013–2014. Source: LSEG Datastream – Global Macro Investor, 21 September 2025.
Despite looming concerns over a potential government shutdown and persistent but moderating inflation, markets remained resilient, setting the stage for a potentially bullish fourth quarter. Historically, shutdowns have had little impact on equity markets, and any negative effects have typically been followed by quick recoveries.
Treasury yields continued to rise at the longer end of the yield curve whilst shorter-dated stock performed better, and the targeted 10-year yield slipped and hovered around the 4% level. In the near term, Yield Curve Control (YCC) may anchor the 10-year yield around 4.15%. We expect the yield curve to steepen further at the longer-duration end.
While tariffs pose some inflation risk, we believe that the true driver of inflation will be money supply growth, likely manifesting in 2026/2027. Money supply growth, otherwise known as liquidity, is a global phenomenon as central banks react to the debt refinancing demands in the global trend in fiscal dominance. Fiscal dominance—where government borrowing pressures influence central bank policy—can undermine monetary discipline, leading to inflationary risks and reduced policy credibility. Combined with fiat currency debasement, this dynamic erodes purchasing power, distorts asset prices, and can trigger a flight to hard assets or alternative stores of value like gold or digital currencies, as investors seek protection from long-term value dilution.
Source: Alpha Beta Partners, 1 October 2025
European markets showed resilience amid global uncertainties, with the STOXX Europe 600 posting its strongest September gain in six years. Investor sentiment was buoyed by optimism around US economic growth and potential rate cuts, even as long-dated European government bonds experienced volatility due to fiscal pressures and political tensions in countries like France.
UK markets reflected a complex mix of cautious optimism and fiscal tension. The FTSE 100 continued its upward momentum, gaining 1.23% for the month, supported by strong corporate earnings and resilient consumer demand. Remember, the footprint of FTSE 100 earnings is global in nature. However, the gilt market faced renewed volatility and pressure, with 30-year yields surging to their highest levels since 1998—driven by sticky inflation, elevated issuance, and investor concerns over fiscal credibility. While the Bank of England delivered a fifth rate cut during August, but it was resilient to downward pressure in September, with long-term borrowing costs remaining elevated, underscoring the UK’s challenge of balancing growth with debt sustainability. Our concerns around economic stewardship of the UK have been voiced here before, but we remain unmoved.
China’s financial markets in September 2025 reflected a dynamic mix of optimism and caution. Mainland equities surged to decade highs, driven by strong domestic investor participation, AI-fuelled tech gains, and targeted policy support. The Shanghai Composite Index closed near 3,825, marking a robust year-to-date rally. Meanwhile, policymakers continued to roll out stimulus measures—including liquidity injections and property sector relief—to counter persistent deflationary pressures and weak consumer demand. Despite lingering concerns around real estate and employment, investor sentiment improved as Beijing signalled commitment to stabilising growth and restoring market confidence.
Emerging markets delivered a standout performance in September, with the MSCI EM Index surging nearly 7%, marking its ninth consecutive monthly gain—the longest streak since 2004. This rally was powered by strong AI-driven growth in Taiwan and South Korea, and supportive macro conditions like a weaker dollar and earlier rate cuts across EM central banks.
Meanwhile Japan’s financial markets were marked by heightened volatility and political intrigue. The resignation of Prime Minister Shigeru Ishiba triggered a surge in Japanese equities, with the Nikkei 225 climbing 1.45% and the Topix reaching a record high. Investors responded positively to speculation around successors favouring pro-growth, deregulation-focused policies. Meanwhile, Japanese government bond yields soared to multi-decade highs—30-year yields hit 3.285%—as fiscal uncertainty and inflationary pressures intensified. Despite the turbulence, foreign investor inflows and corporate reforms continued to support the market with expectations resilient once political theatre passes.
At portfolio level we remain positioned as risk-on. Recent portfolio adjustments include access to negotiated preferential share classes enabling us to reduce portfolio costs for investors; fund and manager changes for our commodity asset class exposures and a timely reduction in exposure to longer-duration Gilt fund(s). Whilst overall progress remains healthy, we are opening discussions with notable specialist managers to explore opportunities to co-manufacture strategies that are not widely available to us. It is intended that any developments will bring a strong and positive benefit to portfolios and we look forward to keeping you updated.
Written by the Alpha Beta Partners Investment Team.
All sources Bloomberg unless otherwise stated.
