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Our market summary
October saw broadly positive returns for both equities and fixed income. Easing US-China trade tensions and moderating inflation supported market sentiment, while central banks maintained dovish policies. Technology stocks led gains globally, and strong corporate earnings further buoyed global equities, which were up 4.8%. However, political uncertainty in Europe and fiscal concerns in the UK tempered optimism. Emerging markets outperformed, driven by Asia’s tech sector and new trade deals. Meanwhile, fixed income benefited from falling yields and supportive monetary policy, though credit markets faced some pressure. Regional returns over the month for sterling-based investors were helped by sterling weakness against the US dollar.
US
US equities rose 4.9%, reaching multiple record highs. The rally was fuelled by strong earnings, a US Federal Reserve (the Fed) rate cut, and enthusiasm for artificial intelligence (AI) related technology with the Magnificent Seven, up 4.5%, dominating gains. Meanwhile, trade tensions eased following the meeting of US President Trump and Chinese President XI in South Korea at the end of the month. Elsewhere, there are growing signs of a divergence between the market and the real economy which was further pressured during the month with a government shutdown. Despite robust consumer spending, third-party economic data (used in the absence of official data) showed job losses as well as manufacturing activity declining for the eighth straight month.
Europe
European equities posted modest gains in October ending the month up by 3.0%, with value stocks outperforming growth. However, political instability in France and limited exposure to commodities and AI weighed on performance. Inflation in the eurozone eased to 2.1%, but economic growth remains weak. Meanwhile, the European Central Bank (ECB) held rates steady, awaiting clearer signs of either stronger growth or an increase in inflation.
UK
In the UK, equities rose by 3.7%. A dovish Bank of England stance and falling gilt yields boosted sectors that are most sensitive to interest rate movements. Meanwhile, commodity strength and weaker sterling supported mining and energy stocks, but manufacturing and retail lagged. Fiscal concerns persisted, with government borrowing at pandemic-era highs, raising expectations for tax hikes or spending cuts by the Chancellor in the upcoming budget.
Emerging markets
Emerging markets outperformed developed markets in October, boosted by strong performance from Korea and Taiwan’s technology and industrial sectors. Overall, emerging markets were up by 6.8%. The demand for AI as well as new trade deals also drove returns. At a regional level, Argentina saw a remarkable rally, ending the month up by 63.6%, after the victory of President Javier Milei’s party in the Argentinian mid-term elections. Elsewhere, Hungary outperformed along with Chile, Poland, Thailand, and the United Arab Emirates, and India benefited from festive spending and trade optimism. China and several Middle Eastern markets underperformed due to weaker energy prices and currency pressures.
Fixed income
In October, global government bonds were up 0.8% as yields fell across major regions. Gilts outperformed, ending the month up by 2.9%, supported by a more dovish stance from the Governor of the Bank of England, and softer inflation. Credit markets were mixed, with high yield outperforming investment grade, though credit spreads widened.
Performance review
The Cirilium Portfolios delivered positive returns in October amid equity and bond market rallies. Returns ranged from 1.9% for the Conservative Portfolio up to 3.7% for the Adventurous Portfolio. Equity exposure drove the bulk of returns for the higher risk portfolios but the contribution to returns was more evenly split between bonds and equity for the Conversative Portfolio, in line with its lower equity weighting. The alternatives holdings were a small drag on performance.
AI was the overriding theme as tech yet again led stocks higher, while the US government shutdown was largely ignored. The portfolios benefitted from their overweight position in Japan, whose stock market enjoyed its best month in decades as the new prime minister unveiled her pro-growth agenda, although this was partly diluted by yen weakness. Bonds rallied prior to the interest rate cut by the Federal Reserve at the end of the month, but gilts were the standout performer as soft labour market data, early signs of moderating inflation, and expectations for tax rises at the coming Budget gave investors more confidence that the Bank of England will lower interest rates as we move into 2026.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Performance summary
Portfolio activity
The strategic asset allocation (SAA) of the portfolios received its annual update at the start of October, and we traded to new target weights over the course of the month. The most significant change was a shift out of cash and alternatives into UK fixed income, including both gilts and corporate bonds. The portfolios remain overweight to alternatives but the total weight in the asset class reduced in line with the SAA. We did not add as much UK interest rate risk as implied by the SAA change, moving to a modest underweight, although this still leaves the portfolios overweight to UK bonds versus their IA performance comparators. The weighting to equities increased for all portfolios except the Adventurous Portfolio and there were modest changes to regional tilts. Europe and Japan were the main beneficiaries while US exposure was reduced. We also partially currency hedged the Japanese equity overweight in the portfolios.
Investment outlook
As we look to the rest of the year and beyond, the key themes on which we are focused are AI and its influence on US equity returns; the trade-off between sticky inflation, slowing growth, and weak job creation; and whether excess liquidity will remain in the financial system. We will also have to navigate a tricky UK budget that is likely to require tax rises as the chancellor aims to build fiscal headroom while juggling the demands of both her party members and the bond market.
Can AI euphoria continue?
AI continues to be the dominant theme in equity markets, with huge investments made by the likes of Meta and Alphabet. The question is whether this will lead to sufficient future earnings to justify sky-high valuations. One warning sign of potential euphoria is the increasing use of margin accounts, borrowing money to purchase shares using existing assets as collateral, by retail investors. The use of vendor financing to sell more memory chips is also a concern, but the fact that capital spending is largely financed from excess cash flow rather than debt means this could continue for a while longer.
Where have the jobs gone?
Job creation over recent months has been lower than might be expected given the rate of growth in the developed economies, which could lead to lower wage growth moving forward and hence less upward pressure on inflation. The optimistic view is that this is due to a combination of tighter immigration controls but more importantly productivity growth (the AI effect?). Alternatively, this may be an early signal of reduced spending and lower economic growth ahead.
Too much money chasing too few opportunities?
Aside from AI, we have seen many areas of behaviour recently that suggest there is plenty of money looking for a home – both gold and bitcoin reached all-time highs in October, although the sheen has come off them since then. Meanwhile, credit spreads are now back to the lows seen before the global financial crisis and there has been a boom in private credit offerings. History suggests that this can lead to pockets of risk building up in unexpected places, so we are keeping an eye on credit markets for signs of this.
Ian Jensen-Humphreys
Portfolio Manager
Sacha Chorley
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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