MARKET INSIGHT – October 2025

MARKET INSIGHT

Prime Partners’ monthly analysis of global economic and financial market news.

September belies its reputation

The return to business after the summer is often perceived as an unfavorable period on the financial markets. Indeed, September and October have a reputation for being difficult months for equities. So far, 2025 has not confirmed fears of an adverse seasonal effect, thanks once again to announcements related to artificial intelligence and the scale of contracts signed between tech giants, which have continued to impress investors.

However, we should be careful not to get lulled into a false sense of security. The past month has also seen the price of gold soar again by almost 10%. This acceleration in the rally of the yellow metal, which has already been considerable this year, partly illustrates the paradox facing market participants. On the one hand, there is great confidence in the technology sector, and on the other, there are legitimate concerns about geopolitics, the debt burden of many large developed countries, and the polarizing policies pursued by the Trump administration on virtually every front.

In 1965, French artist Barbara also evoked the paradox of the end of summer in her song Septembre. The French icon, nicknamed the “lady in black,” described the sadness of a love story ending while September still offered “nice weather.” Investors, for their part, have not had to hum a tune about the end of a love affair with stocks (especially those related to AI).

As we enter the last quarter of the year, it may seem equally legitimate to see the glass as half empty or half full when it comes to equity markets. In terms of valuations, stocks are expensive. Jerome Powell did not say otherwise in one of his recent speeches. However, in concert with his colleagues at the Federal Reserve, he unsurprisingly proceeded with an initial rate cut and raised the prospect of two more reductions this year. The Fed chairman’s speech was, understandably, not as dovish as Donald Trump’s most ardent supporters might have hoped, and for good reason: the impact of tariffs is beginning to show in the economic data and looks set to intensify over the coming quarters, fueling a pick-up in inflation.

The U.S. central bank has chosen to address the problem of a slowing US economy first, without losing sight of the looming inflationary rebound

The central bank has therefore chosen to address the problem of a slowing US economy first, without losing sight of the looming inflationary rebound. In doing so, Jerome Powell has, for once, spared himself the wrath of the US president, whose attempts to politicize the Fed are not well received by investors, and rightly so.

Also, in the US, September saw the signing of record contracts between major players in artificial intelligence. This time, Oracle benefited the most, with its share price rising 35% on September 10 alone, following the announcement of truly phenomenal sales prospects for its Cloud unit. OpenAI was subsequently identified as the firm’s main new customer. The frenzy surrounding the company developing ChatGPT continued unabated, as less than two weeks later, Nvidia and OpenAI announced a strategic partnership in data centers, involving an investment by the former in favor of the latter of up to $100 billion over time. Simply mind-boggling!

Despite these staggering figures, we should not get carried away, because the technology sector, as important as it is today (nearly 40% of the S&P 500 index), does not in any way diminish the challenges facing the US economy. A stagnant labor market, where small and medium-sized businesses, in particular, are no longer creating jobs. Consumers who are very careful about their spending and have become even more selective in their purchases. A debt trajectory that is moving resolutely in the opposite direction of a reduction. Finally, there is chronic instability due to the erratic announcements of the current administration. Added to these various factors is the feeling that polarization within American society is accelerating.

This climate creates uncertainty, reducing visibility for many economic players. As a result, they regularly opt for the status quo, whether in terms of consumption, investment, or hiring. The feeling of being on “slippery ground” is somewhat of a drag on various parts of the American economic engine.

On the Old Continent, the mood is very different and the paradoxes less glaring. European growth is certainly not spectacular, but it is not causing investors to break out in a cold sweat either. The ECB is in a situation far removed from that of the Fed and offers greater visibility. On the other hand, the boom in artificial intelligence is not really a driving force there, and the European Union remains composed of countries with very disparate economic dynamics.

The French situation is a particular cause for concern at present. The political instability following the appointment of a new prime minister (the fifth in President Macron’s second term) is a millstone around the country’s neck. The lack of political continuity is preventing the implementation of concrete measures to try to break out of the debt spiral in which France is mired. Furthermore, a return of social unrest cannot be ruled out, as polarization seems to have gained ground in recent months among the population.

In Germany, the automotive industry, historically a flagship sector and a major source of employment, is going through difficult times. Between US tariffs coupled with the weak dollar, sluggish Chinese demand, and increasingly intense competition in the electric vehicle market, the major German carmakers can no longer serve as the economic engine for the country.

In contrast, southern European countries continue to ride a more positive wave, starting with Italy and Spain, whose achievements in recent years in terms of budget and political stability have been hailed by rating agencies.

Finally, we cannot fail to mention European defense at a time when the Kremlin is dangerously testing the limits of NATO members and stepping up its provocations. These negative geopolitical developments on Europe’s borders are forcing many member states to increase their military spending, which is not always good news for the fiscal consolidation of certain countries seeking to reduce the burden of interest on their debt.

China appears to be able to compete with the US-based AI giants, even proclaiming time and again that it can do without American technology

Finally, a few words about China to round off this brief overview of the world’s three major regions. Like the United States, the Chinese economy and local stock market indices paint a mixed picture. There has been little economic change since the end of Covid and the bursting of the real estate bubble. Housing prices continue to fall and consumption remains weak. In addition, US tariffs coupled with overproduction of certain goods, such as solar panels and electric cars, have indirectly led to a sharp increase in Chinese government debt, as the state is heavily subsidizing entire sectors of the country’s industry. Despite this unfavorable context, equity markets have risen significantly this year and still appear to offer good upside potential. Once again, the explanation lies in artificial intelligence, where China appears to be able to compete with the US giants in the sector, even proclaiming time and again that it can do without American technology, particularly in the field of semiconductors. At this stage, it seems likely that the major Chinese technology groups will be able to keep up with the breakneck pace set by Silicon Valley, but without, presumably, being in a position to really take the lead in the near future.

Against this backdrop, our portfolios performed well in September, buoyed by exposure to US equities, but also to emerging markets and, of course, gold. With stocks becoming increasingly expensive in recent weeks, without any corresponding reduction in uncertainty, particularly with regard to geopolitics, we too are favoring the status quo.

The upcoming third-quarter earnings season will provide valuable insights into the health of the US economy and should confirm, or not, our constructive yet always diversified approach to managing our portfolios. After this September 2025, as Barbara said sixty years ago, “never has the end of summer seemed so beautiful.”