Investment Viewpoint: Positive signs and notes of caution

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Markets and macro insights with Bernard Swords, Chief Investment Officer

What were the main developments in markets last week?

• Global stock markets began the week on a positive note following news that the US government shutdown had ended. However, sentiment turned more cautious as the week progressed. The shift was driven by two factors: consolidation in the technology sector after months of strong gains, and comments from US Federal Reserve officials suggesting that interest rate cuts may not happen as quickly as markets had anticipated.
• One bright spot was the healthcare sector, which rose in value by nearly 5% last week, likely reflecting a revaluation prompted by an easing of uncertainty around tariffs and US government policy measures. Last Wednesday’s Chart of the Week provides more information through this link.

What economic data became available last week?

• Economic data was limited in the US due to the government shutdown, but now that a resolution has been agreed data releases begin again with September’s non-farm payrolls on Thursday.
• In China, the data was somewhat concerning. Retail sales grew only 2.9% year-on-year, similar to the growth rates in developed economies, while the property market remains under pressure. House prices fell by 0.5% month-on-month, property sales dropped 19% year-on-year, and new construction declined by 30%. These trends continue to cloud China’s economic outlook.
• In the euro area, industrial production rose 0.2% month-on-month, consistent with GDP growth of about 0.75% to 1% annually.

Has Goodbody made any changes to its asset allocation and general assessment?

• The Goodbody Wealth Management Asset Allocation Committee met last week and decided to maintain our current positioning in equities and fixed income. The US economy is performing slightly better than expected, but we remain cautious due to weaker jobs data and the potential impact of tariffs.
• Inflation remains sticky, and tariffs could add some upward pressure, though central banks appear willing to refrain from strong intervention. We do expect US interest rates to be lowered over the next 12 months, but not with the rapidity anticipated by markets. In Europe, it seems likely that the rate-cutting cycle has already concluded, with rates holding at around 2%, unless growth weakens significantly.

What is the current overall picture in regard to market performance?

• Equity markets have performed better than expected. While valuations appear high, this is mainly due to US mega-cap technology stocks. Excluding these, broader markets are near long-term averages. Earnings news remains positive, particularly in the US, where companies reported strong third-quarter results, with earnings up about 15% year-on-year— well above forecasts. Europe saw only modest growth of about 1%, held back by limited exposure to AI and challenges in the auto sector. Encouragingly, more than half of companies providing outlooks have raised their guidance.
• Bond markets seem to have been valued accurately. With rate cuts complete in Europe, yields are unlikely to fall much further. In the main, investors should expect returns from running yields rather than from price gains.

The week ahead: what to watch out for

Non-farm payrolls will be the highlight from the US. Euro area inflation and confidence indicators are expected, as well as the minutes from the meeting of the US Federal Reserve.