World Economic and Market Outlook - October 2025
- kevincoghlan
- Apr 21
- 3 min read
On a day-to-day basis markets have continued to be dominated by policy announcements and geo-political noise. Over the quarter, currency markets were less impactful on returns, with the US currency relatively steady, with the exception being some weakness in Sterling on political uncertainty. Rather than trying to second-guess policy announcements, investors have been wel served by concentrating on the facts as they affect economic fundamentals, market valuations, and sentiment.
In the US whilst it is still too early to accurately assess the exact impact of tariffs, to date there has not been fu l pass through of higher costs, although some larger retailers wi l have brought forward purchases of imports which has shielded consumers.The slowdown in the labour market, especially in terms of hiring, has encouraged the US Federal Reserve to believe that the prospect of a further inflationary spiral from tariffs is now unlikely, and that therefore any jump in inflation will be transitory. The US labour market remains one best described as ‘No Hire – No Fire’ and Trump’s measures to both reduce levels of immigration and remove i legals wi l no doubt have made businesses wary about head count reduction measures. This may help the labour market remain relatively resilient over the remainder of the year.
Overall, US consumption has remained strong, although there have been some signs of weakness at the lower ends of the market, with many consumers enjoying a positive wealth effect due to the continued strong gains in local currency terms from US equity markets.
Within the US economy, spending on technology, especia ly AI-related projects, including data centres remains extremely strong, and large cap companies have seen the best earnings revisions with as a result the so-ca led Magnificent Seven continuing to outperform this year. Within the market there has been more differentiation on a stock-by-stock basis, and smal and mid-caps, which are more sensitive to domestic conditions have had a more difficult time and in fact, seen downward revisions to analyst earnings expectations for 2025. These businesses are also likely to be finding tariff-related supply chain management more difficult than large caps due to their lower internal resources and expertise in this area.
With no signs of an imminent US recession, despite the market’s relatively high rating, when combined with the prospect of rate cuts investors should continue to hold US large cap companies where productivity gains should continue to drive improvements in corporate earnings. Whilst US market valuations remain relatively high there appears to be little by way of catalysts for a significant market setback as company profits should continue to grow strongly going into 2026. US companies remain better placed than their counterparts in Europe to benefit from continued AI spending. The capex boom looks likely to continue in the States as no one wants to be left behind even though the end game winners are not yet clear. Whilst after such a sharp run up there is always the possibility of a correction AI wi l likely remain a positive factor for US equities over the next few months. AI is turning some cyclical stocks into secular ones. The makeup of the S&P500 means the US stock market is not the same as the wider US economy.A potential wild card for markets would be if the US courts declared reciprocal tariffs i legal although the administration would look to implement them through different means.
Outside of the States growth forecasts for Europe have been under a little pressure as have forecasts for corporate profits growth.
The economic outlook for the Emerging Markets region overa l has improved with Dollar weakness giving scope for interest rate cuts. In China, the stock market story has a l been about innovation and the technological gains which are helping drive manufacturing efficiency. China has seen upgrades to earnings estimates for the first time in many years and this augers wel for a continued stock market re-rating. Selectively, some Asian markets together with Latin America offer investors positive earnings growth and reasonable valuations, suggesting the outperformance of this asset class can continue.
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