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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.
Source: Quilter as at 31 October 2025. Total return, percentage growth. The performance shown for global equities is represented by the MSCI AC World Index, US equities by the MSCI USA Index, European equities by the MSCI Europe ex UK Index, UK equities by the MSCI United Kingdom All Cap Index; emerging market equities by the MSCI Emerging Markets Index, global government bonds by the Bloomberg Global Aggregate Corporate (GBP Hedged) Index, and UK gilts by the ICE BofA UK Gilt Index.
Performance review
October saw another month of strong performance across financial markets, driven by easing tensions between the US and China, encouraging economic indicators, and solid corporate earnings. These positive forces helped offset investor concern around private credit markets and speculation of an AI-driven asset bubble. US equities extended their winning streak although performance was narrow with the Magnificent Seven powering the rally. Fixed income markets also rallied with government bond yields falling despite hawkish signals from the Fed late in the month.
Despite an underweight to AI stocks, strong performance from emerging markets and Japanese equity holdings boosted returns. Emerging market debt and gilts were standout performers within the fixed income holdings. Over the month, the Monthly Income Portfolio and the Monthly Income and Growth Portfolio delivered returns of 2.6% and 3.4%, respectively. Both portfolios marginally outperformed their performance comparators.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Performance summary
Portfolio activity
During the month, we increased the holding in the FTF Clearbridge Global Infrastructure Income Fund given the positive outlook for the sector. We also increased duration exposure, primarily in the UK, in advance of an update to the strategic asset allocation at the end of October.
Investment outlook
October delivered another month of strong returns for equity markets, with investor sentiment buoyed by robust earnings, easing US-China trade tensions, and a second consecutive rate cut from the Federal Reserve.
Market disconnect widens
Despite the positive momentum, the disconnect between market valuations and underlying risks continues to widen. AI-related stocks remain the dominant force behind index-level gains, with Nvidia alone now accounting for nearly 8% of the US market. This concentration has raised concerns about fragility, particularly as signs of stress emerge in private credit markets and commercial real estate. Meanwhile, the Fed’s latest rate cut was accompanied by a divided vote, with Jerome Powell, Fed Chair, cautioning that further easing is ’far from a foregone conclusion’.
Reasons to be cheerful
That said, there are still reasons to be positive. Tariffs have not pushed US inflation up as high as many feared it would, consumer spending remains resilient (particularly among higher-income households), and the recent US-China trade truce has helped ease geopolitical tensions. If economic growth holds up, we could see broader market participation beyond the mega-cap AI cohort. However, this may also temper expectations for further monetary easing in the near term.
A focus on diversification
With equity market indices at, or near, all-time highs, we continue to focus on diversification within the portfolios as well as being nimble when opportunities present themselves. While we are modestly overweight equities, we maintain a diversified portfolio and are mindful of position sizing as the risk of unexpected events catching us out seems high in the current climate.
Helen Bradshaw
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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