Investment Viewpoint: Equity markets reach an all-time high

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Markets and macro insights with Bernard Swords, Chief Investment Officer

How did the markets perform last week?

• Equity markets had a strong week, with the global stock index rising by over 1.2% in euro terms. The technology sector continued its positive momentum, gaining almost 3%, although there was no specific positive news release driving the increase.

• The standout performer, however, was the healthcare sector (up almost 7%), which benefited from a new agreement between the Trump administration and Pfizer.

What is the significance of the deal between Pfizer and the US government?

• The deal with Pfizer attracted attention because it could set a precedent for similar agreements with other pharmaceutical companies. President Trump indicated that further deals of the same kind are imminent. Under the agreement, Pfizer has undertaken to sell medications to the US Medicaid programme at the lowest price offered globally.

• Discounted medications will also be available through a direct-to-consumer platform called TrumpRX. As a consequence, Pfizer will be exempt from certain tariffs for three years. The agreed measures follow a prior tariff announcement that exempted pharma companies from a 100% levy on branded medicines if they committed to manufacturing in the US.

• The Pfizer deal supports the view that the motive for the pressure exerted on the industry by the Trump administration is the reshoring of production rather than the reduction of prices. The financial impact on Pfizer is expected to be limited, as Medicaid already benefits from significant discounts.

• The TrumpRX initiative, when launched, is likely to affect only a small portion of the population and a limited number of medications. Company forecasts have not as yet taken the deal into account, but it is being seen as a positive development for the entire pharma sector, reducing uncertainty and offering a clear means of avoiding tariffs.

How did the US government shutdown affect markets?

• The US government shutdown has not had any significant effect on market sentiment. Historically, shutdowns have had little impact on equities, with market performance strengthening during previous shutdowns in 2013 and 2018. Investors tend to focus more on broader economic and policy developments, viewing shutdowns as temporary.

What new data was released last week?

• Last week saw the ISM manufacturing survey in the US, which showed a slight improvement but remained below the 50 mark, which is a sign that the industrial sector is flat rather than shrinking. The results were consistent with other data showing flat industrial production over the past year.

• Due to the US government shutdown, some key data releases – such as the non-farm payrolls report – have been delayed. This makes it harder to assess the state of the labour market. Private-based surveys have offered a few updates, but these can be misleading. This week’s ADP National Employment Report was weak, indicating job losses in August and September, but it is a narrower survey. All the labour market data of the last three months suggests a weakening, yet with little impact on consumption growth so far.

• In China, both the manufacturing and services PMIs declined toward the 50 level, with a more noticeable drop in services. The Chinese economy continues to face short-term challenges, particularly from higher U.S. tariffs and ongoing uncertainty, but there were no major surprises in the data.

What new data was released last week?

• Last week saw the ISM manufacturing survey in the US, which showed a slight improvement but remained below the 50 mark, which is a sign that the industrial sector is flat rather than shrinking. The results were consistent with other data showing flat industrial production over the past year.

• Due to the US government shutdown, some key data releases – such as the non-farm payrolls report – have been delayed. This makes it harder to assess the state of the labour market. Private-based surveys have offered a few updates, but these can be misleading. This week’s ADP National Employment Report was weak, indicating job losses in August and September, but it is a narrower survey. All the labour market data of the last three months suggests a weakening, yet with little impact on consumption growth so far.

• In China, both the manufacturing and services PMIs declined toward the 50 level, with a more noticeable drop in services. The Chinese economy continues to face short-term challenges, particularly from higher U.S. tariffs and ongoing uncertainty, but there were no major surprises in the data.

What is the overall investment outlook in the US?

• The weakness in the US job market means that the Federal Reserve has the justification to cut interest rates despite the fact that inflation remains high. In September, longer-duration bonds outperformed shorter duration bonds as markets priced in three further interest rate cuts from the Federal Reserve in 2025, and began to expect more cuts in 2026. The weaker ADP labour market figures from last week consolidated that expectation.

• At the same time, however, US corporate bonds also performed well in September and in the past week. The US corporate bond index is in fact of longer duration than that of the US treasury, and so it has benefitted from falling core or government base rates. The performance of US corporate bonds will also be buoyed by the positive future prospects for economic growth, even if growth can be considered modest at present.

  Fixed Income with Elizabeth Geoghegan, Head of Fixed Income Strategy

  How have fixed income markets performed in September and then more recently with the US shutdown?

• In September, markets priced in further interest rate cuts from the Federal Reserve in 2025 and began to expect more cuts in 2026. This weighed on core treasury yields leading to the outperformance of longer-duration bonds outperformed shorter duration bonds. This theme continued last week as weaker ADP labour market figures consolidated that expectation.

• Within fixed income markets, US corporate bonds also performed well in September and in the past week. The US corporate bond index is in fact of longer duration than that of the US treasury, and so it has benefitted from falling core or government base rates. The performance of US corporate bonds will also be buoyed by the positive future prospects for economic growth, even if growth can be considered modest at present.

  How did European fixed income markets perform?

• Whereas the US Federal Reserve is expected to cut rates, the European Central Bank (ECB) is largely considered to be finished their cutting cycle following a significant amount of cuts year to date. Inflation, which was falling is also showing some signs of stickiness, with releases last week showing core inflation in data remaining at 2.3% year-on-year for the fifth month in a row.

• Despite the diverging central bank outlooks falling core yields in Europe, also led to the outperformance of longer duration bonds for the month of September and last week.

• One notable difference however is that European corporate bonds have a shorter-duration profile than their US counterparts, and so government bonds, especially longer-term government bonds, were the relative winners in September and last week.

• Some positives within Europe that are buoying the fixed income markets is the settling of French bonds following a period of weakness, positive fiscal headlines within Germany and positive developments in Italy surrounding the fiscal budget.

  Given the recent outperformance of European Government bonds what are we thinking about the fixed income strategy?

• Our current strategy favours corporate bonds relative to government bonds with an overall neutral duration stance. Goodbody remains comfortable with our positioning for a few reasons.

• Firstly, inflation remains sticky which poses a challenge for central banks and puts upward pressure on expectations and hence long-term yields.

• Secondly, we are seeing more focus on government debt levels which is also keeping long term bond yields elevated. The impact of a hiking Bank of Japan also has the potential to influence the base level of long-term rates in the rest of the world.

•  Thirdly, despite narrow spreads, corporate bonds remain in high demand in the market as lower cash rates push investors out of cash and into risker assets such as high-quality corporates. Our bond managers confirm this general trend.

The week ahead: what to watch out for

From the euro area, Retail Sales data will be issued for September. From the US, we will receive the minutes of the Federal Open Market Committee of the Federal Reserve.