Week ended October 31, 2025:

The A.I. narrative features daily now, dominating the news and investors’ minds, making it impossible to not mention those key catchphrase words in these updates.  This extract below is from an article that appeared in the #FT last week – “Revenge against the banking nerds is near” – written by a former investment banker who provided his thoughts on the impact of A.I. on newly-minted investment banking analysts and associates.  

As a former banker, this article resonates with me because I believe A.I. will dramatically change the roles, and  – for that matter – the need for, junior talent at professional services firms like investment banks, accountancies and consultancies.  However, A.I. will not change (at least not yet) the real value –  and hence remuneration – of senior professionals with the interpersonal skills, gravitas and emotional intelligence to connect with clients and present the story.  Although senior client-facing professionals might not be at the front of the queue for A.I. job-redundancy risk, even this might change sooner than any of us can imagine.

And speaking of A.I., I was listening to an interview with a CIO last week on #Bloomberg, and the question was asked: “is A.I. a bubble or a megatrend?”  That was a good question.  I have little doubt that A.I. is a megatrend that will reshape the world and will have profound effects on productivity and

economic growth.  The A.I. revolution is underway and there’s no stopping it. The changes it will bring to society will be profound, and hopefully, a net is positive for mankind.  Stock prices are another matter altogether though, and this is where the term “bubble” is appropriately banded about.  The question regarding stock prices is around valuations: “are the prices of go-go A.I. narrative stocks properly calibrated with the expected future profits to be generated considering the huge – and growing – amount of investment that will be required?”  The graph to the right from #Unhedged will give you a flavour of how much capex has increased for some of the Mag 7 companies to support the A.I. rollout.

As of now, investors are giving A.I. companies the benefit of the doubt as far as rich valuations.  It makes be squirm slightly because the amounts to be invested are so large.  Having said that, as we saw last week with earnings, some companies – Amazon for example – can’t seem to build data centres fast enough to meet the insatiable demand.  A.I. is a megatrend, and its evolution is speeding up and broadening. However, as an investor, when, where and on which companies to place your bets are still far from straightforward, although investors are certainly all-in.

Turning to the drivers of markets last week, stock increases were perhaps more muted but still mostly rose. Investors were focused on the FOMC decision and earnings (mostly around five of the Mag 7 giants that reported), with a bit of geopolitics thrown in following a Trump-Xi meeting on the sidelines of the ASEAN session in South Korea.  

The Fed delivered exactly as expected, but as usual, there were nuances in Chairman Powell’s statement / press Q&A afterwards.  The decision to reduce the Fed Funds rate by 25bps had dissenters on both sides, showing that the monetary path forward is far from clear. Importantly, the Fed also agreed to end QT in early December.  What caused pause for equity investors is that Mr Powell said that a December rate cut was far from certain because the Fed remains data-dependent, a difficult assertion in the context of important economic data not being available at all due to the ongoing government shutdown. Although the Fed clearly remains on an accommodative path, the intermediate and long end of the UST curve sold off following the FOMC decision as yields moved higher.  Keep in mind that there are other complications at work as far as the UST market than solely the Fed and its policies.  You can find the FOMC decisionhere, and you can watch Mr Powell’s press conference following the decisionhere.  

Earnings also continued last week, with 172 of the S&P 500 companies reporting.  Most focus of course was on five of the Mag 7 companies – META, GOOG, MSFT, AAPL and AMZN. The results in some respect were a mixed bag even though three of the five companies beat top- and bottom-line consensus analysts’ expectations. A.I. investment features strongly at several of the companies that are involved in cloud including GOOG, AMZN and MSFT. On Thursday, both AMZN and AAPL reported, which are arguably more consumer-oriented businesses to a certain extent, and neither disappointed.  META was hit the hardest last week, both because of a one-time tax charge causing a bottom-line miss and concerns over the magnitude of their A.I. investment. There is plenty of coverage regarding these companies in the financial press, so I will leave it here.  The table below summarises the performance of Mag 7 stocks last week and YtD, along with some valuation metrics.  (Keep in mind that NVDA is yet to report (scheduled for November 19^t), and TSLA reported their results in mid-October.)

None of the Mag 7 stocks are cheap, but the mother of all insanity remains TSLA, which is probably the most over-valued company I have ever seen.  God bless the Tesla diehards who are keeping the stock at ridiculously stupid levels on Mr Musk’s promises and conjecture, as the core operating results continue to trend in the wrong direction.

Somewhat related, recall that there was a fair amount of talk late last year and early this year that the stock prices of the Mag 7 companies would lag the S&P 500 index as the other 493 stocks caught up.   So far, that has turned out not to be true.  The Mag 7 stocks continue to dominate the index and are exerting abnormal influence on the overall return of the S&P 500 index, as you can see in a graph to the left that appeared in #Unhedged last week.

Markets

Most major US and global stock indices were better last week.  Japanese stocks soared as the Bank of Japan did not raise its policy rate, and suggested that such an increase would not be on the table until 2026.  With UST yields surprisingly higher last week following the Fed’s decision, the more interest-rate sensitive small- and mid-cap Russell 2000 was the only index that was lower WoW.  At the other end of the spectrum and with another injection of A.I. adrenalin, the tech-heavy NASDAQ was up over 2%, leading the charge last week among US stock indices.  As already mentioned, bond yields were higher across the curve, which makes me uncomfortable in light of the Fed’s easing decision.  Gold was down another 3% WoW, but remains just above $4,000/oz and is hanging on to its 52% gain YtD.  The US Dollar was better bid, as it continues to improve slowly off its mid-summer lows.

Below are updated tables for the week ended October 31, 2025.

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