Investment Viewpoint: Market rallies despite political uncertainties

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Markets and macro insights with Brian Flavin, Senior Equity Research Analyst

How did global equity markets perform last week?

• Equity markets resumed their rally last week, having stalled the week before.

What characterised the market rally?

• The strength of market performance was more broad-based than it has been of late, diversifying beyond the dominance of AI and new economy sectors to encompass sectors like energy, industrials, consumer cyclicals, and healthcare.

What were the factors driving the rally?

• An alleviation of the previous week’s concerns about credit risks bolstered market confidence.
• Overall, US earnings reports boosted markets. There was positive news from US banks and on sales of Apple’s latest iPhone (both implying a healthy consumer), and on Amazon’s potential efficiencies. In addition, some strong earnings reports emerged from the industrials and healthcare sectors.

What is the more detailed picture regarding earnings?

• A full percentage point higher-than-expected year-on-year growth in US earnings is now predicted this quarter, confirming the positive trend of the previous months and an improving earnings growth for the calendar year 2025.
• Last week showed a few notable disappointments in earnings, e.g., in the case of Tesla and Netflix, though these were offset by the good news from Amazon and Apple.
• Earnings in Europe show a mixed performance so far, with expectations for flat to slightly negative year-on-year earnings growth in the current quarter.

What were the main themes preoccupying the market last week?

• The concerns around credit risks turned out to be isolated in nature and do not appear to carry any implications for the wider economy.
• Potential sources of concern centred on the volatility of US-China trade relations, and the US government shutdown.

What is the situation regarding US-China trade and tariffs? 

• Statements from the US President have vacillated between conciliatory and ominous, including a threat to impose higher tariffs and investigate China’s non-compliance with the 2020 deal. Curbs on exports to China that are made with US software have also been mooted.
• Although a meeting between the US and Chinese Presidents may take place in South Korea at the end of the month, there is no immediate prospect of a resolution.

What is the situation regarding the US government shutdown?

• President Trump has announced that he is terminating trade talks with Canada after an anti-tariff ad campaign was launched by the government of Ontario province.
• The ongoing trade disputes initiated by the US will continue to have an effect on market confidence.
• The US government shutdown is entering its fourth week and looks set to break the record for the longest shutdown (the last such freeze occurred in 2018-2019 for 35 days).
• There has been no movement in the standoff. Federal workers missed a pay check at the end of last week.
• Although the economic impact of the shutdown is minimal for now, its persistence could possibly affect economic growth and hinder the output of economic data.

What is Goodbody’s assessment? 

• Goodbody is maintaining its cautious positioning, reflected through equity overweights in defensive sectors, specifically in healthcare and utilities.
• We want to see how the new tariffs, and indeed any pending trade policy, affect the US economy, and to see whether the weaker job market begins to impact consumer spending.

What new data was released last week?

• Very little significant economic data was released last week. The highlight was the US September CPI report on Friday October 24, which showed a lower-than-predicted increase of 3% in inflation for that month.
• Also on Friday, in the euro area, October’s composite PMIs hit an unexpected 17-month high of 52.2 as opposed to the 51 that was predicted. Particularly encouraging was the increase in new orders and an easing of input costs.
• The UK composite PMI recorded a two-month high, with a read of 51.1 versus the 50.5 expected, driven by restocking in the manufacturing sector.
• Earlier in the week, September inflation for the UK came in at 3.8% year-on-year as against an expectation of 4%. That could take some pressure off the Bank of England.

The week ahead: what to watch out for

• The Federal Reserve policy meeting takes place this week, and is widely expected to result in a further interest rate cut of 0.25%.
• The next most important data point will be the news on US consumer activity from the Conference Board’s Index.
• In the euro area, we will see GDP data for the third quarter and on inflation in October.
• The European Central Bank will deliver its latest decision on interest rates.
• The Bank of Japan is also due to deliver its latest rate decision on Thursday.