Market's Overview:
Global equity markets moved lower during October, although the headline result concealed a significant rotation between sectors. Technology and communication-services companies experienced the greatest pressure, while energy, healthcare, consumer staples and utilities recorded stronger results. Value-oriented shares consequently outperformed growth shares by a wide margin.
The weakness was concentrated in companies connected with artificial-intelligence hardware and infrastructure. Investors questioned whether rapidly increasing expenditure on data centres, advanced semiconductors, power capacity and computing equipment would translate into sufficient near-term revenue and cash flow. Concerns were particularly pronounced for businesses relying on external borrowing to fund their expansion.
October was therefore less a uniform withdrawal from equities than a change in market leadership. The equal-weighted US market advanced even as the conventional capitalisation-weighted index declined, showing that weakness among a relatively small number of very large technology-related companies obscured stronger performance elsewhere.
Key Performance Summary:
United States:
US equities finished modestly lower overall, but performance differed substantially across indices and sectors. The technology-heavy Nasdaq recorded its weakest month since March 2025, while the Dow Jones rose and most sectors within the S&P 500 ended the month higher.
The central issue was the scale of artificial-intelligence capital expenditure. Earnings announcements from several large technology companies confirmed that spending on computing infrastructure remained elevated, but investors became more focused on construction costs, financing arrangements, electricity requirements and the period required before projects begin generating returns. Semiconductor companies were among the areas most affected by this reassessment.
The Federal Reserve left its policy rate unchanged during October and continued to describe inflation as elevated. US economic activity remained comparatively resilient, but employment growth was softer and inflation data reinforced expectations that monetary policy would remain restrictive.
Europe:
European equities were comparatively resilient, supported by their greater exposure to energy and defensive industries. The broader regional result was positive despite weakness in information technology and continuing concerns about economic and political conditions in France.
French markets remained sensitive to fiscal uncertainty, government borrowing and political instability. These concerns widened the yield difference between French and German government bonds and placed pressure on French financial companies.
The European Central Bank kept its deposit rate unchanged. Eurozone economic activity expanded during the September quarter, although conditions varied considerably between countries and the French economy contracted slightly. Higher oil prices remained an additional consideration for the region because of their potential effect on transport, manufacturing and household energy costs.
Asia:
Asian markets were among the weakest performers as the global reassessment of artificial-intelligence expenditure spread to technology-heavy markets. Japanese shares declined after their strong September result, with semiconductor, technology and industrial companies affected by concerns about the sustainability and financing of global data-centre investment.
Chinese equities also fell sharply. Investors remained concerned about subdued consumer spending, pressure on company profit margins and weaker confidence in parts of the technology sector. These issues added to existing questions about the pace of economic activity and the effectiveness of earlier policy support.
The weakness extended to other Asian technology markets, particularly South Korea and Taiwan, where major semiconductor and AI-supply-chain companies had previously recorded substantial gains.
Australia:
Australian shares outperformed most developed markets, supported by gains in financials, utilities and healthcare. The local market also benefited from having less direct exposure to the large AI-related technology companies that led the global decline.
Performance beneath the index was uneven. Larger companies generally performed better than smaller businesses, while materials was the weakest major sector. Falling commodity prices and concern about Chinese demand weighed on large mining companies, including BHP and Rio Tinto.
Australian inflation remained the principal domestic economic issue. September-quarter and monthly inflation readings showed that price pressures had accelerated, while employment data indicated some cooling in the labour market. These releases increased expectations during October that the Reserve Bank of Australia would consider another increase in the cash rate at its November meeting.
Commodities:
Oil was one of October’s strongest major assets. Brent crude climbed to around US$118 a barrel as escalating Middle East tensions, attacks on Saudi infrastructure and continuing uncertainty over regional supply routes raised concerns about potential disruptions. Prices remained elevated despite the release of emergency oil and diesel reserves by G7 countries.
Gold moved in the opposite direction. The metal declined as a stronger US dollar and expectations that interest rates would remain restrictive outweighed demand generated by broader market uncertainty.
Industrial commodities were generally weaker, reflecting concerns about Chinese growth and a reduction in enthusiasm for parts of the AI-related infrastructure trade. This contributed to the underperformance of Australian materials companies.
Bonds:
Government bonds recovered during October as investors responded to equity-market volatility and moved toward more defensive assets. Yields declined from the elevated levels reached during September, producing positive returns across several major sovereign-bond markets.
Australian bonds also advanced as the domestic ten-year government-bond yield retreated during the month. The move occurred even though Australian inflation data remained elevated and market expectations for another RBA rate increase strengthened.
Corporate bond performance was less consistent. Credit spreads widened, particularly for lower-rated companies and businesses using debt to finance large AI-related infrastructure projects, as investors examined whether future project revenue would be sufficient to meet financing obligations.
Economics:
The global economic picture remained mixed. US and eurozone economies continued to expand during the September quarter, and business surveys generally remained consistent with continued activity. However, employment growth moderated in the United States, Chinese economic momentum remained subdued and higher energy costs added to inflation concerns.
Artificial-intelligence investment continued to support spending on technology, power generation and data-centre construction. At the same time, October’s market movements showed that investors were becoming more discriminating about which companies were funding that expansion and when expenditure might produce measurable financial results.
Politics:
Geopolitical developments were most visible in energy markets. Renewed escalation in the Middle East increased uncertainty surrounding oil production, transportation routes and energy infrastructure, while continuing conflict involving Russia and Ukraine also affected global fuel and commodity markets.
France remained a source of political and fiscal uncertainty within Europe, with concerns about government stability and the path of public finances affecting French shares and government bonds. Brazil also experienced significant market volatility following its presidential election result and renewed concern about the country’s budget outlook.
Outlook:
Market attention in the coming months is likely to remain focused on inflation releases, central-bank decisions, energy prices and company earnings. The financing and profitability of artificial-intelligence infrastructure will remain a particularly important theme after October’s sharp adjustment in technology-related shares.
In Australia, inflation, employment conditions and future RBA policy decisions will remain central influences on domestic markets. Internationally, developments in China, the Middle East and European fiscal policy are likely to remain important for commodities, bond yields and regional equity performance.
If you would like to talk about how these matters might affect your own investments, or if you have any questions about this update, please feel free to contact me. I am always happy to explain things in plain language and help tailor the discussion to your personal circumstances.
Explore More Insights from Scott Fraser
This article is part of a broader collection of insights from Scott Fraser, covering a wide range of financial planning and investment topics.
Visit Scotts' page to read more articles, learn about their experience and approach, and choose whether you would like to connect with Scott via email or book in a meeting.
FAQs
What were the key themes in the October market update?
Global share markets moved slightly lower in October, with the MSCI World Index down 0.8%, but the headline result hid a major shift in market leadership. Technology companies linked to artificial-intelligence (AI) hardware and infrastructure fell sharply, while energy, healthcare, consumer staples and utilities performed well. Value shares outperformed growth shares by a wide margin as a result.
Why did technology shares fall in October?
Investors began questioning whether heavy spending on data centres, semiconductors, power capacity and computing equipment would deliver enough revenue and cash flow in the near term. Concerns were strongest for companies borrowing to fund that expansion. The Nasdaq Composite fell 5.3%, its weakest month since March 2025.
How did the Australian share market perform in October?
The S&P/ASX 200 rose 1.4%, outperforming most developed markets thanks to gains in financials, utilities and healthcare. The local market also had less exposure to the large AI-related technology companies that led the global decline. Materials was the weakest sector, falling 7.8% as lower commodity prices and concerns about Chinese demand weighed on major miners.
Why did oil prices rise while gold fell?
Brent crude gained 13.7% to around US$118 a barrel, driven by escalating Middle East tensions, attacks on Saudi infrastructure and uncertainty over regional supply routes. Gold fell 7.2% because a stronger US dollar and expectations that interest rates would stay restrictive outweighed demand from broader market uncertainty.
Why were investors expecting another RBA rate rise?
September-quarter and monthly inflation readings showed price pressures in Australia had accelerated, even as employment data pointed to some cooling in the labour market. These releases increased expectations during October that the Reserve Bank of Australia would consider another cash rate increase at its November meeting.
What should investors watch in the months ahead?
Key factors include inflation data, central bank decisions, energy prices, company earnings and the financing and profitability of AI infrastructure. In Australia, inflation, employment and RBA policy will remain central, while developments in China, the Middle East and European fiscal policy are likely to influence commodities, bond yields and regional markets. Speak with your Morgans adviser to discuss how these factors might affect your investments.
Disclaimer
This report was prepared by Scott Fraser through independent research facilities as a private communication to clients and was not intended for public circulation, publication or for the use of any third party, without the prior written approval of Scott Fraser. It does not constitute advice to any person. The views expressed here are those of the author and do not necessarily reflect those of Morgans Financial Limited (ABN 49 010 669 726), its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”). Morgans may publish research on the company/s named here, which will be forwarded on request. While this report is based on information from sources which Scott Fraser considers reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Scott Fraser's judgement at this date and are subject to change. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions. This report is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. This report does not constitute an offer, or invitation to purchase, any securities and should not be relied upon in connection with any contract or commitment whatsoever.
