Nicola Wealth Market View
Markets around the world continued to reach new highs in October, supported by easing policy and resilient economic data, even as risks beneath the surface became more pronounced. Valuations are stretched, leadership remains narrow, and global conditions are uneven, with renewed trade tensions, slowing growth in China, and persistent fiscal uncertainty in the United States.
In this environment, maintaining balance remains important. Diversification across asset classes and geographies, disciplined risk management, and flexibility in portfolio positioning are crucial to navigate both ongoing market strength and underlying structural challenges. While the near-term backdrop appears supportive, elevated valuations, fiscal pressures, and pockets of market concentration reinforce the relevance of resilience and selective risk-taking.
Below is a condensed version of Chief Economist Rob Edel’s Market Commentary, offering key highlights from October's market activity. To read the full commentary, click here.
New highs in a market with stretched valuations
Equity markets maintained strong momentum in October, with both the S&P 500 and S&P/TSX reaching new all-time highs. Globally, more markets are hitting records than at any point since December 1999. While today’s environment is different, the comparison introduces some caution, especially with valuation measures such as the Buffett indicator and Shiller CAPE at extreme levels. Elevated valuations do not necessarily end a cycle, but they leave markets more sensitive to shifts in data, sentiment, or policy.
Easing policy continues to anchor market confidence
A key difference from the late 1990s is the direction of monetary policy. The Fed cut rates again in late October, marking a second reduction in 2025. Surveys show central bank policy is expected to be the largest positive contributor to near-term U.S. equity returns, and two-year Treasury yields remain below the Fed Funds Rate, suggesting expectations for additional easing. While markets anticipate further rate cuts, they are possible but not guaranteed. The Fed also ended quantitative tightening, and global rate reductions over the past two years have created very loose financial conditions, providing an additional tailwind for risk assets.
Labour market softness alongside persistent inflation
The Fed continues to balance a slowing labour market against inflation that has not fully returned to target. Job growth has been weak for months and recent data suggests layoffs may be starting to rise, although initial claims remain stable. Inflation improved in September, but the three-month annualized rate remains closer to 3.6%, and “supercore” inflation excluding shelter remains firm. Bloomberg notes that inflation appears stuck near 3%, which complicates the policy path if labour conditions weaken further. These cross-currents create an environment where data can shift sentiment more quickly, particularly around expectations for the policy path.
A K-shaped consumer backdrop and mixed economic signals
Economic conditions continue to diverge across households. Confidence has weakened among lower-income consumers while improving among higher earners, supported in part by equity market gains. This divergence is also visible in markets, where consumer and consumer discretionary sectors have been nearly flat despite strong headline index performance. Soft data, such as surveys and sentiment, has weakened materially, while hard data remains constructive. AI-related capital spending has continued to provide important support and Goldman Sachs expects the combined growth impulse from policy and financial conditions to strengthen into 2026, even as underlying consumer trends remain uneven. The result is an economy that shows resilience in some areas and slowing in others.
Debt pressures and shifting market signals
Rising sovereign debt remains a long-term risk, with advanced-economy debt levels near historic highs and IMF scenarios pointing to further increases. Despite this, U.S. Treasury yields and the dollar remain stable, and Treasuries have outperformed other G7 government bonds since mid-year. Gold’s strong rally has reflected ongoing concerns about debt sustainability and long-term currency confidence, supported in part by continued central bank buying.
At the same time, AI continues to be a major driver of equity performance, although rising investment costs and negative free cash flow among several large technology companies have increased scrutiny around the sustainability of that leadership. In an environment where headline performance remains strong but underlying risks vary across different areas of the market, portfolio diversification continues to play an important role.
For deeper insights from our Chief Economist, get access to the full commentary
Disclaimer
This material contains the current opinions of the author, and such opinions are subject to change without notice. This material is distributed for informational purposes only and is not intended to provide legal, accounting, tax or specific investment advice. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information presented here has been obtained from sources believed to be reliable, but not guaranteed. Nicola Wealth Management Ltd. (Nicola Wealth) is registered as a Portfolio Manager, Exempt Market Dealer, and Investment Fund Manager with the required securities commissions. All values sourced through Bloomberg, unless otherwise specified.
