Market Snapshot

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This week in numbers

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The Atlanta Fed’s forecast for Q3 US GDP.

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Total announced US job layoffs year to date, the highest number since the Global Financial Crisis.

US$ 0 tn

The Fed’s current balance sheet. It aims to end quantitative tightening by 1 December.

Past performance is not an indicator of future performance.

Quote of the week

Whether this pause creates room to negotiate a more lasting deal remains to be seen. For global equities, the conclusion has been modestly supportive, and the resumption of data collection should provide investors with better visibility into the state of the US economy.

Paul Dalton, Investment Director – Equities, Federated Hermes Limited, takes some positives from the conclusion of the Congressional logjam.

This week’s Market Snapshot

An end to the US government shutdown

Early stockmarket gains reversed this week as tech valuations once again came to the fore.

At 43 days, government shutdown was longest in US history.
For investors, main impact was lack of economic data.
Markets gained on news of shutdown’s end; only to fall by week’s end on tech valuation concerns.

Markets sold off this week despite the long-running US government shutdown saga finally reaching its conclusion. At 43 days, the shutdown lasted longer than the 35-day record set during President Trump’s first term. For investors, one key consequence of the shutdown was the absence of economic data as hundreds of thousands of federal workers entered furlough. This meant data for jobs, GDP and inflation, among many other areas, were not collated or published, making it more difficult to accurately gauge the state of the US economy.

A vote on Monday by the Senate to end the standoff was confirmed by the Republican-controlled House of Representatives on Wednesday.

Markets initially climbed on news of an end to the impasse, with the S&P 500 reaching a 6,857 high for the week on Wednesday, a 3.3% increase on the previous Friday’s close. The gains were shortlived, however, as global markets tumbled on Thursday and Friday over renewed concerns about tech valuations.

By Thursday’s close, the Nasdaq Composite had fallen 2.3% while the S&P 500 retraced 1.7% of its gains. By Friday’s open, South Korea’s Kospi was down 3.8%, the Hang Seng lost 1.9%, while the Nikkei 225 declined 1.8%.

Figure 1: A history of US government shutdowns

Damian McIntyre, Head of the Multi-Asset Solutions Team at Federated Hermes, highlights the data backlog created by the US government shutdown, which investors will now have to work through – but notes this is unlikely to be a game changer. “We only missed a little over a month’s worth of data and that’s not long enough to change the long trends of moderate inflation, slow job growth and strong consumer confidence we saw this summer,” he says. “Additionally, a lot of private data was released during the shutdown and none of it was majorly different from expectations.”

Susan R. Hill, Senior Portfolio Manager, fixed income, highlights one key effect of the shutdown: higher overnight funding rates at the front end of the yield curve. This, she says, is a consequence of the Treasury’s high operating cash balance, which, in turn, was the result of delayed outflows to pay workers’ salaries.

This aside, the most notable impact of the shutdown on liquidity markets, says Hill, was the lack of official data and how that may have influenced the Fed’s thoughts on future policy actions.

For Paul Dalton, Investment Director – Equities, Federated Hermes Limited, the shutdown’s resolution removes some near-term uncertainty and should be seen as a positive. “However, we remain mindful that the truce is temporary,” he adds, noting that the next deadline for US government funding arrives on 31 January.

“Whether this pause creates room to negotiate a more lasting deal remains to be seen,” he continues. “For global equities, the conclusion has been modestly supportive, and the resumption of data collection should provide investors with better visibility into the state of the US economy. That said, there are caveats: the lag in data may leave some ambiguity around the true economic picture, and key risks persist – including inflation pressures, the strength of the US consumer (which cannot have been helped by the shutdown), the trajectory of monetary policy, debate over whether the AI trade is a bubble and, despite the recent truce, the potential for US–China tensions to escalate.”

Charlotte Daughtrey, Equity Investment Specialist, notes the resilience of US equities despite an initial wobble under the weight of uncertainty during the shutdown. “With the US government reopened and policy clarity improving, conditions appear supportive for continued gains into year-end,” she says.

Yields look biased downward

What is driving EM corporate debt outperformance?

High contrast

This month’s Market Snapshot

Has AI market mania reached a peak?

Global equity markets were gripped by fears this week that the AI boom might soon come to a shuddering halt.

Global equities took a hit this week amid concerns that tech stock valuations were looking stretched.
Tech giants have underpinned a six-month bull run in 2025. However, investors are questioning the pace of AI investment.
The S&P 500’s dividend yield currently resembles that of the dotcom era, but this may not necessarily be a reliable indicator of where markets are heading.

Global equities tumbled this week after the S&P 500 Index posted its biggest decline in a month on Tuesday amid fears that the market is heading for a correction following a record-breaking surge in tech stocks.

Investors are questioning whether the pace of investment in artificial intelligence (AI) can be maintained.

US chipmaker Nvidia hit a record high valuation of US$5tn last week – just three months after making history as the first ever US$4tn company – meaning that the value of the AI titan now exceeds the GDP of every country on Earth, except the US and China¹.

Nvidia was not the only member of the ‘Magnificent 7’ tech stocks to make headlines while doubling down on the outlook for AI. Meta, Amazon, Alphabet and Microsoft all released their third quarter earnings reports last week, which contained plans for even greater spending on AI-related projects and infrastructure than previously forecast.

Meta revised up its 2025 capital expenditure plans to US$70-72bn from US$66-72bn and said it expected next year to be “noticeably larger”². Alphabet now expects its spending for this year to be US$91bn and $93bn – up from an estimate of US$85bn in the summer³.

Microsoft’s capital expenditures in the third quarter totalled US$34.9bn, up from US$24bn in the previous quarter.

The AI boom has been a chief driver of equity markets in 2025 and has propelled big tech stocks to record highs. The ‘Magnificent 7’ – Apple, Nvidia, Microsoft, Amazon, Tesla, Alphabet, and Meta – currently hold a collective weighting of around 37% in the S&P 500. These companies accounted for 42% of the index’s 15% total return in the first three quarters of 2025⁴.

Figure 1 shows the performance of a Bloomberg index tracking the ‚Magnificent 7‘ specifically versus the broader S&P 500 index.

Figure 1: Magnificent 7 underpins the S&P 500’s gains

However, fears that valuations are stretched and potentially on course for a correction underpinned a fall in global stocks this week.

On Tuesday, the US blue-chip S&P 500 and the tech-heavy Nasdaq index declined 1.2% and 2%, respectively⁵. Asian markets followed in their wake, with the South Korean Kospi index closing 2.9% lower the following day, while Japan’s Nikkei 225 was down 2.5%⁶.

After a brief respite on Wednesday, equities sold off again on Thursday in a round of trading that saw the Nasdaq close 1.9% down. The S&P 500 was down 1.1%, led by Tesla and Nvidia losses. The yield on the 10-year US Treasury fell 7bps to 4.09%⁷.

Figure 2: Is the S&P 500’s bull run faltering?

Can more analyst coverage help predict stock performance?

AI revolution needs shift in engagement focus

US-Aktien und Quant Investing: Die Macht der Daten

At a time when investors are on the lookout for indications about where markets are heading, Daniel Peris, Head of Income and Value Group at Federated Hermes urges caution when it comes to drawing parallels with the dotcom bubble. He notes that any similarities between the S&P 500 now and during the dotcom bubble of the late 1990s, in terms of dividend yield, is a poor indicator of future market movements.

“I would urge dividend investors and those who might be concerned about the equity market’s current valuation to not rely, even slightly, on the S&P 500’s current dividend yield as a measure of valuation or future direction. The index’s roughly 1.1% yield is now for all intents and purposes the same as it was in 2000 at the height of the Internet Bubble. Dividend investors should ignore that fact. The market may be undervalued, it may be overvalued, it may be porridge-perfect – but dividend yield has nothing to do with it,” he says.

“Once upon a time, in a world far away, dividend yield was a useful tool for measuring the broad market (via the S&P 500, created in 1957). By the mid-1990s, dividend yield was already largely irrelevant as an aggregate measure. Investors drove up and rode down internet stocks in the late 1990s without regard to yield at the security or index level. The market’s record-low dividend yield at the time was a coincidental factor, not a causal relation that might explain or forecast market movements. Investors should assume the same now,” he adds.

¹ GDP (current US$) | Data

² Meta – Meta Reports Third Quarter 2025 Results

³ GOOG Exhibit 99.1 Q3 2025

⁴ Three on Thursday

⁵ Source: Bloomberg

⁶ Ibid

⁷ Ibid

Milei’s midterm vote fires-up free-market overhaul

The Argentinian president’s party won by a landslide in a congressional vote this week, providing fresh impetus to his bold reform programme.

Javier Milei and allies now have more than 100 seats in the lower house, but will need the support of smaller centrist parties to reach the 129 required to pass legislation.
Argentina’s Merval index has risen 35% since the vote and the yield on the country’s 10-year sovereign bond has fallen 22%, following periods of extreme volatility this year.
Milei is now in a strong position to push forward with his reform agenda of deregulation and potential dollarisation.

President Javier Milei’s party won a landslide victory in Argentina’s midterm legislative elections over the weekend, which should provide fresh impetus to his radical programme to overhaul the country’s long-troubled economy.

Polls expected the vote to be close following a series of scandals that had dented the government’s popularity and led to a run on the peso. The opposition Peronist party – which has dominated Argentine politics for three decades – won elections in a bellwether province of Buenos Aires in September, leading to investor jitters about weakening support for Milei’s reforms.

The US pledged a bailout package this month to shore-up the peso. It may have helped swing the midterm election, which saw Milei’s La Libertad Avanza party secure almost 41% of the vote. Milei and his allies now have more than 100 seats in Argentina’s lower house, but will need the support of smaller centrist parties to reach the 129 required to pass legislation. The picture in the Senate is broadly similar.

“With these midterm election results, Argentina is one step closer to solidifying the reforms made by Milei and increases the chance of solid structural change in the future,” says Chris Clube, Co-Portfolio Manager, Global Emerging Markets, Federated Hermes. “It makes investing in the country less of a binary bet and more of a fundamental one.”

Figure 1: Argentina’s Merval rebounds after bumpy year

“Many investors had been following the story without pulling the trigger, and this result may be the signal to jump in,” adds Clube. “The market will now look into how much Argentina’s GDP can grow following two years of shock therapy to combat inflation.”

The most recent IMF outlook forecast GDP growth of 4.5% this year¹.

Milei was elected in November 2023 on a platform of economic liberalisation and fiscal and monetary conservatism – a radical break from Argentina’s interventionist past, characterised by excessive overregulation and unconstrained public spending. During his first two years in office he has implemented a severe austerity package which has helped tame the country’s chronic inflation crisis.

Argentina’s year-on-year inflation rate fell to 31.8% in September (down from 292.2% in April last year), while the monthly rate was 2.1% in September (from a peak of 25.5% in December 2023)².

Clube observes: “Milei now has a real opportunity to deliver on his bold reform programme, but, since his party lacks a majority in the lower house, he will still need to work effectively and flexibly with other parties to pass key pieces of legislation.”

Figure 2: Argentina’s 10-year sovereign debt rollercoaster

The end of exorbitant privilege?

GEMs Equity, Outlook H2 2025

Can Argentina reboot its crisis-ridden economy?

Argentina’s benchmark Merval index has risen 35%³ since the vote and the yield on the country’s 10-year sovereign bond has fallen 22%⁴, following previous spells of extreme volatility.

“Investors were cautious at the start of this year, but the narrative has shifted dramatically,” says Jason DeVito, Senior Portfolio Manager for Emerging Market Debt. “Markets are now more confident in Milei’s ability to push forward with his reform agenda of deregulation and potential dollarisation.”

DeVito adds that the US financial backstop has added a layer of geopolitical and economic stability. “Whether or not this [stability] materialises, the election outcome signals a shift to a more fundamental investment case for Argentina,” he says.

“Milei’s grassroots popularity and strengthened political position give him the opportunity to influence policy meaningfully. For investors, this could be the beginning of a more sustainable path, provided his reforms are implemented effectively.”

^{1 IMF DataMapper}

^{2 Instituto Nacional de Estadística y Censos (INDEC)}

^{3 Bloomberg as at 30 October 2025}

^{4 Bloomberg as at 29 October 2025}

Are (private credit) cracks widening?

Recent hairline cracks in the private credit sector have revived fears of wider systemic risk.

Fraud disclosures have raised fears of weak lending standards in private credit.
Unsettling comparisons to the banking turmoil of 2023 have given some investors a sense of déjà vu.
The question remains: are these idiosyncratic cases or canaries in the coalmine?

A red flag, or a one-off?

The twin collapse of two leveraged US auto firms, Tricolor and First Brands, which led to renewed stresses in the US regional banking sector last week, has raised fresh fears about the health of global credit markets.

The failure of the two private credit-backed US companies was driven by alleged financial misreporting and excessive leverage, and exposed leading lenders – such as Barclays and JPMorgan Chase – to sizeable losses.

Investors are questioning whether these lending failures are isolated incidents within the private credit sector or early signs of broader risks across the industry.

During JP Morgan’s third quarter earnings call, CEO Jamie Dimon put it bluntly: “When you see one cockroach, there are probably more.”

As stress risks increase in credit markets, comparisons have been drawn to the implosion of Silicon Valley Bank (SVB) in 2023.

Zion Bancorp and Western Alliance, two US regional banks, disclosed exposure to possible credit fraud on October 16, sending the SPDR S&P Regional Banking ETF – a proxy for the US regional banking sector – tumbling by 6.2% in its largest one-day drop since the SVB fallout (Figure 1) amid a broader sell off in banking stocks.¹

“The credit underwriting process itself lies at the heart of investors’ concerns,” says Karen Manna, Vice President, Client Portfolio Manager for Fixed Income at Federated Hermes.

“With billions of dollars in pursuit of yield, loans are increasingly being originated through opaque structures often by entities known as Non-Depository Financial Institutions (NDFIs), which include private credit funds,” Manna says.

The shift [towards NDGIs] raises questions about transparency, risk oversight, and the resilience of the system under stress,” she adds.

Figure 1: Bad loans spark worries… what comes next?

The reckoning

Filippo Alloatti, Head of Financials at Federated Hermes, argues that the recent lending failures are likely to prompt a broader reckoning within the banking sector.

“These events have reignited scrutiny of NDFIs, particularly in private credit and its ties to private equity, even though the sector has dominated financial press coverage for over two years,” he says.

“We expect more banks – both in the US and Europe – to begin revealing the skeletons in their cupboards, as these developments are likely to encourage deeper loan book reviews.”

However, Alloatti adds that the impact of any fresh revelations will probably depend on timing and market conditions, “It’s too early to tell if any new revelations will spook the market – although last week’s provision news and borrowing increases from the Fed’s standing repo facility (SRF) did just that.”

Outside of the US, several key factors could provide crucial support to European financial groups as they navigate the uncertainties caused by this situation, Alloatti adds.

These factors include: a positive interest rate environment (versus pre-Covid levels) and cleaner asset quality; as well as the drivers of adverse selection into private credit – led by not underwriting certain borrowers and significant risk transfers (SRTs).

In addition, Alloatti says, the EU benefits from a strong regulatory regime in comparison with the US (where regulatory focus is on larger banks).

A good quarter for rates and spreads as the bond market inches along

Lots of game left as we enter the fourth quarter

Where can bond investors find value in a rate-cutting cycle?

¹The Wall Street Journal, as at 22 October 2025.

Irrational exuberance Mk II?

Markets remained unruffled this week even as investors weighed the risk of an AI-induced market meltdown. But do the sceptics have a point?

IMF and leading banks sound warning on AI market risk.
Other cited risks include a deepening US/China trade war, unexpected Fed action and an extended US government shutdown.
Collapse of First Brands and Tricolor Holdings offers credit markets pause for thought.

Investors this week pondered the risk of an AI-driven market meltdown. This followed a warning from International Monetary Fund (IMF) economist Pierre-Olivier Gourinchas of “a significant AI-related, tech-related investment surge”, which, he said, is creating echoes of the early 2000s dotcom boom.

Earlier in the week, the chief executives of Goldman Sachs, JPMorgan Chase and Citigroup also raised the prospect of financial markets entering bubble territory – even as their banks announced record results.

Nonetheless, markets remained largely unruffled. The S&P 500 declined slightly, falling 1.6% for the week to Thursday’s close. This was partly in response to the bankruptcies of two auto industry-related companies, First Brands and Tricolor Holdings, and fears of contagion in private credit markets. Treasuries rose, with the yield on the benchmark 10-year US bond falling to 3.967%, its lowest level since April.¹

Figure 1: Forever blowing bubbles?
AI-related investment, real and forecast 2020-2030

The equity CIO’s view

Steve Auth, Federated Hermes CIO, Equities, highlights the bursting of an AI-driven bubble as one of six possible sources of future volatility for global markets. These include an extended US government shutdown, unexpected policy action from the US Federal Reserve, a US Supreme Court ruling against President Trump’s tariff programme, a deepening trade war with China and an earning seasons ‘wobble’.

On AI, Auth notes how much this sector has contributed to the market rally following April’s lows. “Any sudden shift of sentiment on whether AI will ‘work’ or not would be treated poorly by investors, and would likely lead to at least as large a drawdown as a deepening trade war with China,” he says. “Our own read from our teams’ dozens if not hundreds of company meetings across the economy is that a sudden shift here is unlikely. Too many really smart people have invested too many hundreds of billions of dollars to be utterly wrong on this call.”

In addition, says Auth, many companies are already achieving productivity gains from early AI innovation, across multiple sectors of the economy. “So any newsflow here, in our view, would be noise at worst and if the market reacts, a buying opportunity,” he says.

The global equity manager’s view

Lewis Grant, Senior Portfolio Manager for Global Equities at Federated Hermes Limited, notes how this year’s stock rally has been primarily sentiment driven, with fundamentals an afterthought. This is understandable, he says, since there are reasons to argue that this “this time it’s different”, not least how the rally has been led by established, well capitalised, mega-cap companies.

Even so, he adds, fundamentals and valuations can only be ignored for so long. “The IMF’s warning of a bubble will embolden those proclaiming a market top,” he says. “Such intense capital expenditure, with payoffs uncertain in terms of quantum and timeframe, leave the AI rally vulnerable to sudden shifts in risk appetite.”

He adds: “We remain bullish on the long-term investment case for AI, but with such a high concentration in the market we see attractive overlooked opportunities across the market that are more driven by the fundamentals. Whilst tariffs add uncertainty to growth, we believe that there are plenty of under-loved stocks set to benefit from a broadening out – watch out for US GDP growth, interest rate decisions, and earnings as catalysts. We also see opportunities in Europe as the industrial machine begins to turn, although, admittedly, that may take time to get into full swing and comes with its own set of potential challenges.”

Ein fundamentaler Anlageansatz mit dem Ziel, in einem sich verändernden Marktumfeld eine finanzielle Outperformance zu erzielen.

EOS Stewardship

An end to the US government shutdown

This week in numbers

An end to the US government shutdown

Yields look biased downward

What is driving EM corporate debt outperformance?

High contrast

Has AI market mania reached a peak?

Can more analyst coverage help predict stock performance?

AI revolution needs shift in engagement focus

US-Aktien und Quant Investing: Die Macht der Daten

Milei’s midterm vote fires-up free-market overhaul

The end of exorbitant privilege?

GEMs Equity, Outlook H2 2025

Can Argentina reboot its crisis-ridden economy?

Are (private credit) cracks widening?

A red flag, or a one-off?

The reckoning

A good quarter for rates and spreads as the bond market inches along

Lots of game left as we enter the fourth quarter

Where can bond investors find value in a rate-cutting cycle?

Irrational exuberance Mk II?

The equity CIO’s view

The global equity manager’s view

Lots of game left as we enter the fourth quarter

Where can bond investors find value in a rate-cutting cycle?

Behind the red-hot rebound in emerging markets

Related insights

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Der Wert von Anlagen und deren Erträge können sowohl steigen als auch fallen und Anleger erhalten das von ihnen investierte Kapital möglicherweise nicht zurück.

Sustainability.
We mean it.

Ihre Präferenzen

Kontaktmöglichkeiten

Ein fundamentaler Anlageansatz mit dem Ziel, in einem sich verändernden Marktumfeld eine finanzielle Outperformance zu erzielen.

EOS Stewardship

Market Snapshot

An end to the US government shutdown

This week in numbers

An end to the US government shutdown

Yields look biased downward

What is driving EM corporate debt outperformance?

High contrast

Can more analyst coverage help predict stock performance?

AI revolution needs shift in engagement focus

US-Aktien und Quant Investing: Die Macht der Daten

The end of exorbitant privilege?

GEMs Equity, Outlook H2 2025

Can Argentina reboot its crisis-ridden economy?

A good quarter for rates and spreads as the bond market inches along

Lots of game left as we enter the fourth quarter

Where can bond investors find value in a rate-cutting cycle?

Lots of game left as we enter the fourth quarter

Where can bond investors find value in a rate-cutting cycle?

Behind the red-hot rebound in emerging markets

Related insights

Get the latest insights straight to your inbox

Related Insights

Der Wert von Anlagen und deren Erträge können sowohl steigen als auch fallen und Anleger erhalten das von ihnen investierte Kapital möglicherweise nicht zurück.

Sustainability. We mean it.

Ihre Präferenzen

Kontaktmöglichkeiten

Sustainability.
We mean it.