Clime Economic and Market Commentary – October 2025
Most global share markets posted another month of gains, making it either the sixth or seventh monthly increase in a row. The key drivers appear to be resilient economic growth in the US, strong Q3 corporate earnings, upgraded forecasts for China, and a dovish Federal Reserve. To date, we have seen only limited impact from US tariffs on trade, inflation, corporate profits, or the labour market, but further impacts may still be ahead. The US market posted 8 new all-time record highs for the month, and the Australian market posted 4 new record highs. Stock valuations are at lofty levels compared with long term averages.
The key US index, the S&P 500, was up 2.3% in October, and +20% over the last 12 months. The Dow Jones was up 2.5% for the month, and 12% for the last 12 months. For Nasdaq, the figures are +4.8% for the month, and +30% for the year.
A notable performance over October was Japan, where the Nikkei 225 spiked 16.6% over the month, leaving it up 36.7% for the year. European markets were broadly positive.
The Australian share market has lagged the US and Asia in recent months. The ASX200 rose around 0.4% over the month but is up +8% over the last 12 months.
In the United States, Economic Data Is Resilient
US equities reached new all-time highs during the month, despite volatility, with momentum looking to carry the market into the usually firm final 2 months of the year. The Federal Reserve confirmed its dovish pivot with a 25 basis point rate cut, its fifth reduction this cycle, but suggested that further cuts were not “a foregone conclusion”. The US dollar firmed over October but remains around 8% lower versus a basket of major currencies than it started the calendar year.
The US federal government shutdown continued through the month with no signs of ending soon, and is likely to become the longest in history. The shutdown only applies to around 25% of federal government spending and does not affect essential services such as social security, Medicare, interest on debts, customs, hospitals and air traffic controllers. US markets appear generally unfazed by the shutdown.
US third quarter earnings have been strong. Analysts projected that S&P 500 companies’ Q3 earnings rose by an average of 10.7%, based on results already released and expectations for pending reports, according to FactSet. Entering earnings season, analysts had expected an 8.0% rise.
The US and China announced an agreement partially rolling back tariffs implemented earlier this year. President Trump said the total combined tariff rate on Chinese imports will fall from 57% to 47%. The pact extends to other trade issues, including rare earth export controls, fentanyl trafficking, and US soybean exports.
After the strong gains in October most of major global stocks are well ahead for the calendar year-to-date, with perceived winners from Artificial Intelligence particularly strong.
On the US stock market, Nvidia soared to become the first company in history to hit a US$5 trillion market value. The concentration and dominance of the Big Tech stocks is becoming even more pronounced: eight of the ten biggest stocks in the S&P 500 are tech stocks. Those 8 companies account for 36% of the entire US market’s value, 60% of the gains in the index since the market bottomed in April and almost 80% of the S&P 500’s net income growth in the last year.
Cyclical sectors are starting to outperform, and the bull market led earlier in the year by mega-tech companies is broadening out to include small caps, commodities, financials and industrials – suggesting that the economy will be on firmer footing in the coming year. Sector rotation is typical of long running bull markets.
Overall, the data suggests the US earnings cycle is still in expansion, supported by resilient demand, easing input costs, and improving margins across multiple industries, a constructive signal for equity markets and the durability of the current corporate profit upswing heading into year end.
The positive outlook is not without risks. An oil price spike or higher-than-expected inflation could curtail the Fed’s easing cycle. Geopolitical tensions are still a wildcard capable of disrupting sentiment. High valuations mean that any potential correction could be severe.
Australian Economic Data
September-quarter inflation data reset expectations for near-term rate cuts, hitting interest-rate-sensitive sectors hardest, particularly the consumer discretionary and real estate sectors. The 12-month CPI inflation rate is high at 3.2% (up from 2.1% last quarter), and the annualised 3-month rate even higher. The main problem areas are housing rents, electricity, gas, healthcare, tobacco, and education costs.
The RBA’s preferred trimmed mean measure rose by 1.0% in the quarter and is back up to 3.0% (previously 2.7%). The outcome was the largest quarterly increase in prices since early 2024 and had been foreshadowed by recent monthly price data. The quarterly increase was well above the RBA staff’s August forecast of 0.6% and above the consensus market estimate of 0.8%.
Australia’s labour market is still tight and inflation stubbornly elevated, prompting RBA Governor Michele Bullock to signal a more cautious approach to further monetary easing following three rate cuts earlier this year. Speaking at an economists’ dinner in Sydney, Bullock said the central bank needs “a bit more data” on jobs and prices before making its next policy move.
Australia’s share market ended October on a subdued note, capping off a difficult few weeks marked by stock-specific shocks and stronger-than-expected inflation data that dampened investor sentiment. The ASX has materially underperformed global peers.
The big Australian diversified resource companies were stronger in October, with rising commodity prices and government support helping some of the smaller miners. The main drag on the index was CSL, which has now lost around seven years of gains, and Wisetech, where governance issues are highly problematic. The big banks were mostly flat, but with ANZ outperforming on plans to revive the smallest of the Big Four.
For 2025 year-to-date, the ASX is lagging the US and other developed markets indexes. The big drags on the local market continue to be CSL, Wisetech, Woolworths, and the overall dominance of two structurally weak sectors – banks and miners.
The inflation data prompted major banks to revise down their forecasts for rate cuts, a stark shift from earlier expectations that had fully priced in a November rate reduction. Bond traders are now expecting just one more cut this cycle, likely in February, down from two earlier in the month.
Bond Markets, Currencies and Commodity Prices
The market reaction to the Fed rate cut decision was most apparent in the US Treasury market, where yields jumped across the yield curve, bringing the 10-year Treasury yield back above 4% as investors recalibrated expectations for the timing and size of future cuts. Investors focused on Fed Chair Powell’s comment that another cut this year is not a “foregone conclusion.”
The US dollar strengthened, as higher yields and the lower probability of added significant easing provided a tailwind. Bond yields were little changed over the month. US 10-year bonds ended at 4.08% and Australian bonds at 4.31%.
The AUD/USD exchange rate closed the month at US$0.6544. The AUD fell -0.8% against the USD in October despite the Fed cutting rates while the RBA held rates flat. But the AUD rose against the weaker Pound, Euro, and the much weaker Yen. The Yen is suffering a lack of confidence due to fears of inflationary fiscal and monetary policies under new LDP leader Sanae Takaichi, but the weak currency served to spark the price of listed Japanese exporters.
Commodities markets were generally stronger, with some consolidation after earlier rapid movements. Gold and silver were flattish over the month, but have risen by over 50% and over 60% year-to-date, respectively. Gold prices rose +12% in the first half of the month but then fell back -10% leaving the metal marginally higher by month-end despite volatility. Copper is up 20-25% year-to-date, but crude oil is down 14-15% YTD.
With risks of a global recession having moderated since the beginning of the year, the diversification benefits of commodities are becoming more attractive and precious metals appear to offer safe haven benefits. Iron ore stays above US$105/tonne, and is up a little year-on-year, supported by Chinese stimulus measures. It is possible that we are in the initial stages of the next big commodities cycle, but currently most industrial commodities markets are suffering from weak prices due to sluggish global demand and over-production.
Conclusion
Another month of gains on global share markets across most industry sectors and countries, aided by central banks mostly tending towards rate cutting. This is despite sticky inflation and President Trump’s unpredictable tariff deals. It is often said that investors hate uncertainty, but the fact is that nothing is ever certain in markets. As markets become more expensive, we remind investors of the importance of prudent stock selection based on fundamental metrics rather than jumping on the long momentum trade.
