Market Insights: 📈 Risk Is Back On, But For How Long?

📈 Markets Break Records: Q3 Review and Q4 Outlook 

Q4 is off to a flying start with record highs being printed left, right, and center.

US and Japanese stocks made fresh new highs, while the gold price powered through $4,000 for the first time, and Bitcoin crossed the $126k level.

Is this all a case of USD weakness, irrational exuberance, or solid fundamentals?

This week, we are reviewing Q3 market performance, Q2 earnings season, and the outlook heading into the end of 2025…

🎧 Would you prefer to listen to these insights? You can find the audio version on our Spotify, Apple Podcasts or our YouTube! (Released each Monday by 5pm AEST).

This week's Market Insights is a 9 minute read! Full article here

Quote of the week

“The pessimist complains about the wind;

the optimist expects it to change;

the realist adjusts the sails.”

William Arthur Ward

What Happened In The Markets This Week?

Here’s a quick summary of what’s been going on:

🤖 AI’s grip on the S&P has Morgan Stanley’s top analyst ‘very concerned’ (Fortune)

• AI-linked stocks are now responsible for 75% of S&P gains, 80% of profits, and 90% of capex. Morgan Stanley’s Lisa Shalett says that’s too much risk concentrated in too few hands.
• Nvidia is at the center of it all with multi-billion-dollar investments in OpenAI and indirect ties to AMD. The web of financing is starting to look circular, and that’s got echoes of Cisco 2000.
• Deals like Oracle’s $300B OpenAI partnership (funded mostly by debt) are setting off alarms. Shalett’s watching Oracle’s credit default swaps (CDS) spreads as a potential early-warning signal.
• Some research firms expect the hyperscaler’s free cash flow to be 16% lower over the next 12 months, even as this capex adds 100bps to GDP (which is tenfold more than underlying consumer spending growth). 
• Bulls like BofA say Nvidia’s deals are manageable, but even they admit digestion is coming. The runway is getting shorter.
• If AI capex were to cool, then that is the market’s core engine slowing down, and you can expect investors to react accordingly with lower prices for lower spending.

📈 Dell lifts long-term growth targets on surging AI demand (WSJ)

• All that CapEx has to go somewhere.
• At its analyst meeting, Dell hiked long-term forecasts, citing "insatiable" AI server demand, shifting focus from traditional hardware.  The company sees revenue growing at 7 to 9%, with EPS increasing by 15%/year  over the longer term. The company also committed to increasing its dividend by 10% annually through 2030.
• Just 2 years ago, Dell’s PC business was nearly 50% larger than its infrastructure segment. Over the last 12 months the infrastructure business has generated slightly more revenue than the PC business, due to surging demand for servers, and a sluggish PC market.
• The race to build AI capacity is paying off big time for companies selling chips, hardware and electricity. Of course that means expectations are riding on continued capex spending by big tech (and OpenAI).
• The question now is whether the PC market could bounce back, and whether that could offset any slowdown in AI spending.

To see our take on these market stories below, simply check out the full article!

• 🤦 Deloitte Australia refunds government for AI-generated report (Fortune)

• 🇺🇸 US demands EU dismantle green regulations in threat to trade deal (FT)

• 💹 Japan's Nikkei surges to record high on pro-stimulus PM election (Reuters)

• ⚖️ Fed minutes show committee divided on number of rate cuts by year-end (CNBC)

Now let’s dive into the main piece!

🏆 Q3 Winners, Losers, and Key Themes

Artificial Intelligence remained a key theme in Q3, but other sectors and asset classes joined the rally - despite the policy uncertainty and geopolitical risks lurking in the background.

Third quarter Performance (Market Index ETFs)

Here are some of the key themes we noticed:

💰 Risk was back on. Investors rotated into cyclical assets and riskier plays as optimism returned to markets.

🤖 Speculative AI stocks surged across the U.S. and China, even as talk of an “AI bubble” got louder. For this quarter, momentum trumped caution.

🌍 Emerging Markets surprised to the upside, outperforming developed peers on a weaker U.S. dollar and thawing U.S.–China trade relations.

📈 Small caps stole some spotlight, beating large caps in several markets as investors hunted for growth beyond the megacaps.

🥇 The weak-USD trade roared back. Gold and Bitcoin climbed as the dollar lost favor, while gold-heavy markets like Canada, Australia, South Africa, and the UK shone brightest. 

Global markets just wrapped a record-breaking quarter,
but the story beneath the surface is far more nuanced.

AI still leads the charge, yet small caps, emerging markets, and a weaker USD are shifting the market’s balance of power.

So our full piece covers:

🇺🇸 How the U.S. market is evolving beyond the mega-caps,

and why selective conviction is starting to matter again.

🇪🇺 Why Europe and the UK are diverging from the U.S.,

and how rate cuts, metals, and healthcare are reshaping their outlooks.

🌏 Asia’s momentum story: from Japan’s

governance reforms to China’s policy-driven rebound.

💰 Why a weaker dollar and falling yields could make

diversification and quality the best defense heading into Q4.

💬 Join the discussion by leaving a comment!

Would you stay all-in on AI and U.S. megacaps, or start rotating into smaller, cheaper global plays?

Key Events During the Next Week

Tuesday

• 🇬🇧 UK Unemployment Rate 
  • ▶️ Forecast: 4.70%, Previous: 4.70% 
  • ➡️ Why it matters: A steady unemployment rate indicates a stable labor market, and the BOE is likely to remain cautious on further rate cuts.

Wednesday

• 🇺🇸 US Inflation Rate YoY 
  • 📈 Forecast: 3.00%, Previous: 2.90% 
  • ➡️ Why it matters: While the headline inflation rate is expected to tick higher, core inflation is expected to fall slightly, which would support the Fed’s current stance. 

Thursday

• 🇦🇺 AU Unemployment Rate
  • 📈 Forecast: 4.30%, Previous: 4.20% 
  • ➡️ Why it matters: The slight uptick in unemployment suggests some cooling in the labor market, potentially giving the RBA more room to lower rates.
• 🇺🇸 US PPI YoY 
  • 📉 Forecast: 2.5%, Previous: 2.6% 
  • ➡️ Why it matters: A slight decline is expected, which would support the Fed’s dovish stance. A surprise increase could limit the number of rate cuts by year's end. 

Friday

• 🇺🇸 US Housing Starts MoM
  • 📈 Forecast: 1.00%, Previous: −8.50%
  • ➡️ Why it matters: After recent weakness, economists are hoping to see a recovery in the housing market as lower mortgage rates boost the sector.

Q3 Earnings season kicks off this week with the big banks setting the tone:

• Johnson & Johnson
• JPMorgan Chase
• BlackRock
• ASML Holding
• Bank of America
• Abbott Laboratories
• American Express
• Wells Fargo
• Goldman Sachs
• Morgan Stanley

Until next week, invest well.

Simply Wall St