Market Update – 7th November 2025
With many Stock Markets at or near all time highs and with recent comments from Goldman Sachs and Morgan Stanley warning of a potential Artificial Intelligence (AI) led sell-off, it seems appropriate to be communicating our thoughts on markets at this point.
Scott and I have been aware of the relentless rise in risk assets since the middle of April of this year and decided to reach out a couple of months ago to some of the UK’s largest investment managers to see how they are viewing markets, to clarify what risks they are seeing and to understand how they are positioning their Portfolios to navigate the current investment cycle.
The discussions we had with the Fund Managers was very informative and thankfully there was a consistency in the messaging we heard from them on the areas that we were concerned about. The simplest way to define the current consensus view would be to say that they are cautious but not defensive, at this juncture. They all identified issues with the strong run up in valuations seen in the technology giants such as Nvidia, Meta and OpenAi, that are involved in the development and roll out of AI. They all indicated that they saw scope for reversals for those businesses that did not continue to evidence enhanced earnings and monetisation of the new technology. There has been talk of a bubble in this sector and comparisons have been drawn with the dot com bubble that burst during the early 2000’s.
So far, what we have been seeing, is that companies in this field are spending based on concrete demand. It appers that companies are operating from a constrained capacity backdrop, due to power and data centre space being in short supply, so the significant Capital Expenditure we are currently seeing evidence of, is being diverted to build this capacity. A situation where demand is exceeding capacity offers scope for significant future growth in this sector. You only have to look at any transformational industrial period throughout history to see that there are winners and losers as business models develop. AI will be no different and the technology and benefits that the technology offers will be transformative and disruptive in equal measure at points.
What we heard from the Managers we spoke to was that they were top slicing gains on assets benefitting from the AI value boost and redeploying the capital to other non-linked sectors to aid diversification. This strategy broadens the pool of assets being invested in and should help to reduce overall risk.
The views expressed about the future of interest rate policy was that, Central Bank interest rate policy looks to be supportive of real time data and the Federal Reserve looks to be on the front foot in easing interest rates to support a weakening labour market in the US. Other Central Bankers will follow the lead by the Fed and this will help to reduce the debt costs for individuals and companies, which will help to underpin continued spending in the real economy. Inflation will still be a potential constraint but the forward plots of the inflation data show a reducing pressure across many economies over the next 6-12 months.
The recent significant uptick in the value of Gold, viewed as a safe haven investment in times of volatility, is not necessarily a sign of risk aversion as much as a symptom of a technical move by Sovereign Wealth Funds and Central Banks to diversify their holdings away from Government Debt paper, such as Treasuries. This has happened partially based on the uncertainty that has cast a shadow over such assets as they have become politicised as part of foreign policy.
Overall then there is cause to be vigilant in certain sectors where valuations have exceeded what we would assess as fair value. A robust earnings season and supportive Central Banks, that look willing to reduce the cost of borrowing, against a backdrop of reducing inflation expectations and softening labour markets, is positive for risk assets. Consolidating gains and asset allocation diversification are always sensible strategies when volatility is present in markets and we will continue to adopt that discipline when managing client Portfolios.
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