Six months have passed since Donald Trump stood in front of the White House and announced the introduction of tarriffs like some dystopian version of Play Your Cards Right.
Since then markets have been soaring which has led to inevitable fears that what goes up must come down. We are also three years into a (mostly) bull market since the recovery began in October 2022. As the average bull run last around three and a half years, it is completely understandable that people are looking for signs that a downturn is on the way.
The danger of looking for reasons to be fearful (in any aspect of life, not just investing) is that you seek out evidence that justifies your fear. What could follow is a self-fulfilling prophecy.
What matters is to to zoom out and consider things rationally by looking at what impact a downturn could have and whether the data makes it likely or not.
Our commentary this month has been provided by Nathan Sweeney who is the Chief Investment Officer of Multi-Asset Portfolios at our one of our key investment partners, Marlborough.
His insight below firstly looks at the consequence of investing when markets are at a high. Secondly, he takes a look at AI and whether its rapid growth has any similarities to fabled dotcom bubble of the early 2000s.
Finally, he gives a summary of global markets and performance over the last 1, 3 and 12 months.
INVESTING WHEN MARKETS ARE HIGH
When markets hit new highs, people say things like:
- “I’ll wait for a pullback”
- “Feels risky up here”
- “I’ll invest when it cools off”
That hesitation feels safe, but it can mean missing out on returns, as the chart below shows.
Four key points it’s worth remembering when markets are at record highs:
- Markets spend most of their time near record highs
- New highs are not a signal to stop investing
- Time in the market beats timing the market
- The real enemy isn’t volatility, it’s hesitation
It can sometimes feel tempting to do nothing – to put investing on hold and wait for a potential dip in the markets. But history shows that waiting for the ‘perfect moment’ can be the biggest risk of all.
Key Takeaway
In a world of market noise – with headlines trumpeting political uncertainty, interest rate debates and geopolitical tensions – it’s easy to freeze. But in investing, it’s consistency that counts – and it beats waiting for perfection.
When in doubt: stay invested, be consistent and remain focused on the long term. New market highs aren’t something to fear. They’re often a signal of progress.
COMPARING THE AI BOOM TO THE DOTCOM BUBBLE OF THE EARLY 2000s
Currently, the headlines are all about artificial intelligence (AI). The Bank of England even warned that we could be heading for an AI crash like the dot-com bubble of 2000. It raises the question: are markets getting ahead of themselves?
If we’re considering this, then a sensible place to start is valuations. One of the simplest ways to judge whether a stock looks expensive or cheap is by looking at the price-to-earnings multiple or P/E.
Calculating a P/E multiple
- The ‘P’ is the current share price.
- The ‘E’ is the company’s earnings (profits) over the past year.
- Divide one by the other and you get the P/E multiple.
Think of it like this: if a company trades on a P/E of 20x, you’re effectively paying £20 for every £1 of profit. A lower P/E means you’re paying less for those profits (cheaper) and a higher P/E means you’re paying more (expensive). Of course, fast-growing companies often command higher P/Es, because investors are willing to pay upfront today for bigger earnings expected tomorrow.
How does the dot-com bubble compare with today? At the height of the dot-com bubble, valuations were off the charts: Cisco was on a P/E of 216x, Oracle at 161x, AOL at 250x, and Yahoo! north of 1,000x. The top seven tech names averaged a staggering P/E of 276x.
Today’s ‘Magnificent 7’ US technology giants (Microsoft, Apple, Amazon, Alphabet, Meta, Tesla and Nvidia) are certainly not cheap, with an average P/E of around 70x and a median of 36x. But compared to the dot-com peak, they look tame. More importantly, these companies are profitable, cash-rich and dominant in their industries, not speculative start-ups burning through investor cash.
Our chart underlines the point, showing how high the P/E for the overall US technology sector had risen during the dot-com bubble and comparing that with today.
Key Takeaway
Yes, AI has been the big investment story this year and the market leaders have had a very strong run. But compared with 2000, we look more like we’re at base camp than at the summit.
MARKET COMMENTARY
Major stock markets rose in September, helped by a strong performance from giant US technology companies involved in Artificial Intelligence (AI). The US S&P 500 advanced 4.0%* for the month, with companies in the communication services, industrial and financial sectors leading the charge. The standout performer however was China, where the MSCI China index surged 10.1%, supported by domestic investors and technological breakthroughs in AI. Meanwhile, UK equities trailed their global peers as investors adopted a wait-and-see approach ahead of the Budget in November.
Bond markets painted a mixed picture. UK government bonds suffered a particularly bruising September, as yields** climbed to multi-decade highs. Emerging market bonds continued their strong performance, buoyed by a weaker US dollar and supportive economic conditions. Global high yield bonds delivered solid returns, supported by resilient company earnings and attractive yield levels.
Gold has emerged as 2025’s star performer, soaring over 40% to breach $3,700 per ounce – its best showing since 1979 – as central banks stockpiled the precious metal amid mounting geopolitical uncertainties.
UK
The FTSE 100 posted a gain of 1.8% in September. This performance was mainly driven by defence companies and banks. Uncertainty surrounding the UK government’s tax and spending plans has continued and intensified when Chancellor Rachel Reeves announced a late Budget, scheduled for 26th November. She will have to make some very difficult decisions, and the probability is she will have to increase taxes to fill a large hole in the public finances. Inflation remained elevated in August at 3.8% but was in line with forecasts and is expected to peak at 4% when September’s figures are published.
Europe
The European Central Bank (ECB) held interest rates steady for the second consecutive month in September, reflecting confidence in inflation stabilising near its 2% target and resilience in the eurozone economy, despite external pressures. Given this backdrop, the ECB appears to be close to the end of its rate-cutting cycle. That said, the central bank remains focused on the data and has not made any commitments about future policy. Economic data was mixed over the month with consumer confidence modestly improving and the services sector showing resilience. However, manufacturing activity softened, reflecting mixed economic signals.
US
The Federal Reserve (the Fed) cut interest rates by 0.25% at its September meeting, as weaker labour market numbers and mixed inflation signals forced action. The Fed also hinted that further cuts were on the horizon, with markets now pricing in cuts in both October and December. Core inflation remained sticky with goods exposed to tariffs experiencing notable price increases. Consumer confidence figures declined, driven by labour market concerns and worries about inflation. Trade tensions and tariffs add a layer of uncertainty to the economic backdrop in the US.
Japan
Japanese equities extended their strong run in September, although momentum eased after early highs. The country’s TOPIX index, which is comprised of about 1,800 companies, rose 2.7%, hitting record levels mid-month on inflows from foreign investors and optimism over US rate cuts.
The MSCI Japan index was up 2.8%. Sentiment was boosted by Prime Minister Shigeru Ishiba’s resignation on 7th September, which sparked expectations of government action to stimulate the economy. Meanwhile, company headlines were positive for markets: SoftBank rallied on AI related news, Nintendo announced a new Singapore subsidiary to drive growth in Southeast Asia and Lasertec pressed ahead with a share buyback scheme that could be worth more than £60m. However, volatility returned late in the month and new US tariffs on Japanese pharmaceuticals put pressure on healthcare stocks. Property and financial companies performed positively, while computer chip-related businesses fell sharply.
Asia Pacific (excluding Japan)
Asia-Pacific ex-Japan stock markets advanced in September, with the MSCI regional index climbing 6.2%, rebounding from August’s weakness. Gains were driven by a tech-led rally as
optimism around AI and expectations of further US rate cuts encouraged investors. The MSCI Korea index surged 10.9%, while the MSCI Taiwan index rose 9.8%, supported by strong inflows into semiconductor and IT hardware companies.
Trade and policy developments continued to influence sentiment among investors. US tariffs on pharmaceuticals and semiconductors renewed concerns about supply chains but hopes about government support for the Chinese economy and India’s resilience provided a cushion.
Southeast Asia saw mixed performance as weaker global demand weighed on exports. Monetary policy remained broadly positive for stock markets. The Reserve Bank of Australia held interest rates at 3.6%, while several Asian central banks signalled readiness to cut rates further if economic growth slows. Regional inflation continued to ease, giving policymakers more scope to stimulate growth.
Overall, September proved a positive month for Asia-Pacific’s markets, underpinned by AI-driven tech momentum and expectations of more US rate cuts, although trade uncertainty and valuation concerns mean volatility remained heightened heading into the final quarter of the year.
Emerging Markets
Emerging market equities posted strong gains in September, with the MSCI Emerging Markets index up 7.5%, its best monthly performance since late 2023, marking a ninth consecutive monthly rise. The rally was led by China, where optimism about potential measures to stimulate the economy, and a rebound in manufacturing, drove shares higher despite ongoing property sector stress. India underperformed, rising less than 1% as US tariffs and softer manufacturing momentum had an impact on investor sentiment, though activity in the services sector remained robust.
Significant capital from overseas investors continued to flow into both emerging markets shares and bonds. Latin American markets also contributed to the positive picture, buoyed by currency strength and easing inflation, with Brazil and Mexico benefiting from rate cuts and resilient company earnings.
The government policy backdrop also remained positive, with several central banks signalling further rate cuts, while China hinted at additional measures to sustain growth. Valuations remain attractive relative to developed markets, reinforcing the investment case, although geopolitical uncertainty persists.
Bonds
In the US, data has increasingly pointed to a relatively rapid cooling of the labour market, with fewer jobs being created. This could affect the broader economy, by reducing consumer spending. However, the economic picture is being further complicated by massive shifts in immigration, with fewer people entering the US and more being deported. In bond markets, investor expectations of two more rate cuts this year contributed to a fall in yields on US government bonds (also known as Treasuries) during the month.
The UK is also seeing evidence of a slowing labour market, but this has not been reflected in falling government bond yields. The UK government has been struggling to convince investors its tax and spending policies will be responsible. Yields on UK government bonds (also known as gilts) rose, pushing down their prices and as a result gilts underperformed US Treasuries. We believe the UK Budget in November is likely to bring matters to a head.
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