2025 W46 Global DM Recap
With S&P 500 companies reporting record-high profit margins, why are markets rotating away from growth assets and punishing negative earnings surprises more severely than ever?
Markets Narratives
Macro Overview
Global macroeconomic conditions in Week 46 were characterized by cautious optimism following the end of the longest U.S. federal government shutdown. While this removed a significant headwind, questions remained about the timeline for economic data releases and a return to normal conditions. Concerns regarding elevated valuations, particularly in growth-oriented tech stocks linked to AI spending, seemed to drive a rotation away from these assets. Inflationary pressures and labor market signals continued to be key focal points influencing central bank policy decisions.
Policy Insights
Monetary policy remained a central theme, with hawkish commentary from several Federal Reserve policymakers weighing on equity markets and leading to a significant decline in the probability of a December rate cut. They emphasized caution due to persistently high inflation and the need for restrictive policy. In contrast, Japan's new prime minister signaled a preference for loose fiscal policy and a cautious approach from the Bank of Japan on raising interest rates, aiming to boost economic growth. In Europe, a weakening UK labor market and industrial output below expectations fueled bets on potential Bank of England rate cuts, while the ECB maintained its careful stance.
