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4 Nov 2025 | 3 minutes to read
More than 80% of S&P 500 companies reporting Q3 earnings to date have beaten forecasts, putting the index on track for its best quarter since 2021. From its October 2022 low, the S&P 500’s latest bull run has now entered its fourth year, with the index advancing around 90%. Artificial Intelligence (AI)-related capital-expenditure continues to dominate headlines. Big names including Alphabet, Meta and Microsoft have all increased AI capex, signaling that AI spending is not slowing down.
Last week, chip-designer Nvidia became the world’s first company to be valued over $5trn. Apple and Microsoft also hit $4trn valuations. The so-called Mag 7 group of companies – Alphabet (Google), Amazon, Apple, Meta (Facebook), Nvidia and Tesla – now total around $22trn in value and have been a significant driver of index returns.
AI-driven growth remains a critical risk and opportunity for investors given these companies’ outsized impact on the index. That said, equity market gains were further supported by the US Federal Reserve’s (Fed) rate cut last week.
The US Fed cut the key policy interest rate by 0.25% to 3.75% last week but cooled talk of another reduction before 2026. Policymakers were concerned enough about a weakening labour market to act, despite the US government shutdown delaying the publication of key official data. Fed Chair Powell commented that when “driving in fog” one must “slow down”. The decision was not unanimous, disappointing ‘hawks’ who were expecting an immediate 0.5% cut or more before year end to combat inflation.
Given rising asset prices and above-target inflation proving challenging to forecast, markets had perhaps become too optimistic. The Fed did, however, announce an end to its Quantitative Tightening (QT) programme to stop reducing the size of its balance sheet from 1 December. Rather than allowing billions of dollars of Treasury securities to mature monthly and not replace them, the Fed will look to roll over maturing Treasuries and maintain the size of its balance sheet.
Presidents Trump and Xi both signalled a US-Sino trade deal is close last week after reportedly agreeing on critical topics during a summit in South Korea. China confirmed that it would postpone all new restrictions on the exports of rare earths for a year. The US pledged to halve a Fentanyl-related tariff in exchange for cooperating better over its control.
The prospect of a deal was well-received by financial markets and a relief for companies most affected by tit-for-tat tariffs. For all the good news, the tariff truce stops short of ending the trade war. Trump confirmed the US would leave in place the American tariff of 47% on Chinese imports. Other high-stake topics remain unresolved – including the possible sale of Nvidia’s top AI chips to China, a deal regarding American operations of TikTok and the political status of Taiwan.
Disclaimer
Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.
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