Market Commentary

Global markets were volatile in October. In the US, the tech-heavy Nasdaq 100 fell 3.5% on the final trading day of the month, and fell more than 6.6% for the month – its worst overall performance since March 2025. While the S&P 500 index returned -0.9% for the month, the equal-weighted S&P 500 rose by 5.0%. The difference largely comes from the headline index’s heavier weighting of large cap tech names including Nvidia, Alphabet and Meta. Elevated oil prices also weighed on markets.

A late-month rotation out of tech drove markets down, with investor enthusiasm for artificial intelligence-related capital expenditures cooling. Claude developer Anthropic reported nearly US$900 billion in spending commitments despite US$19 billion in revenue, which raised concerns about the ability for the firm to turn a profit. In figures that came in after the month’s end, Anthropic reported that while revenue growth had slowed, its losses had shrunk to US$23.3 billion in Q3 from US$66.3 billion in Q2. OpenAI, meanwhile, has revised its latest funding round down from $30 billion at a $1.4 trillion valuation to $20 billion at a $1.25 trillion valuation, despite citing an increase in revenue.

Emerging Markets were significantly weaker than developed markets, with the MSCI Emerging Markets Net – AUD returning -9.1%. The sell-off was heavily concentrated in tech-heavy markets such as South Korea and Taiwan, which have prominent chipmaking capacity such as Samsung, SK Hynix and TSMC. Concerns were twofold, including the upfront capital required for data centre buildouts as well as growing Chinese competition. 

The Australian dollar (AUD) rose through the month, closing above US$0.70. Hawkish signals from the Reserve Bank of Australia due to stronger-than-expected inflation pushed the currency higher while softer labour data weighed on the currency mid-month.  

The US Federal Reserve (Fed) held rates in its October meeting. US economic data was stronger than expected, with third quarter gross domestic product (GDP) increasing at an annual rate of 3.4% (3.2% expected) while inflation accelerated, rising 3.7% in the year to September (3.6% expected). In post-meeting comments, Fed Chair Kevin Warsh – who has been reluctant to provide forward guidance – noted that inflation remains elevated and that policymakers were adapting to information as it comes available. “If we had a firm conclusion about the conduct of monetary policy, we’d announce it to much fanfare today.” 

The European Central Bank (ECB) kept interest rates on hold at 2.5% at its October meeting, which was expected, after raising it by 0.25% in September. Core inflation in Japan remained above 2%, which is the highest it has been in three years however the Bank of Japan (BoJ) kept interest rates on hold. At 1.25%, the current rate is the highest since 1995. The Reserve Bank of New Zealand surprised markets by holding the cash rate at 2.75%, though it was a 4-3 vote. The Reserve Bank of Australia (RBA) did not hold a Monetary Policy Board meeting in October. The board increased the rate to 4.60% on 29 September due to persistent inflationary concerns.

Australian shares finished October positive, recovering from the previous month’s volatility and outperforming global equivalents, with the S&P/ASX 300 Accumulation Index closing up 1.1%. 

ASX gains were concentrated at the top end of the market, with large cap firms gaining while the S&P/ASX Small Ordinaries returning -6.0% and the S&P/ASX Emerging Companies index off by -9.0%. Utilities were strong performers as investors shifted to a defensive sentiment. There was also some selective strength in financials and banking shares amid expectations for further rate increases from the Reserve Bank of Australia to deal with persistent, elevated inflation. Materials were the biggest detractor in the month as iron ore prices fell and there were concerns about the value of lithium.

Elevated inflation continues to be a pressure on the domestic economy. September’s monthly inflation report was at 4.3%, higher than August. The nation also shed more than 39,000 jobs in the month, raising the national unemployment rate to 4.7%.

Domestic property prices have continued to drop, with the price of a median home off by more than $63,000 since March. The downturn is tracking home prices at the fastest pace in 40 years, per Cotality data. 

Global bonds were positive in October, with the Bloomberg Global Aggregate Index – $A Hedged returning 1.8%.

Global bonds rallied in October – yields fell, prices rose – as investors sought safe haven assets following a tech sell-off. Disappointing earnings from major tech firms renewed concerns about the sustainability of AI investment spending.

The Australian bond market was higher, with the Bloomberg AusBond Composite 0+ Year Index returning 1.1%. Government bond prices were the largest sector of price growth while corporates grew at a slower pace as economic data showed higher inflation and concerns about consumer spending.