Written by Dominic Williams
Global equity markets ended the week on a subdued note, with the MSCI All Country World Index edging up +0.5%, as investors rotated out of AI-driven tech stocks, triggering sector-specific selling. Volatility was amplified by the US government’s reopening after its record 43-day shutdown. Mixed economic data across regions curbed enthusiasm and prompted investors to dial back exposure to technology and other fast-growing companies, which have seen strong gains.
In the UK, the economic outlook remained lacklustre ahead of Chancellor Rachel Reeves’ Autumn Budget on 26 November. Revised official figures confirmed Q3 GDP growth of only +0.1% quarter-on-quarter, coming in below the +0.2% consensus forecast. This followed flat output in August and a contraction in September, in part due to disruptions like the cyber-attack on Jaguar Land Rover that curtailed vehicle production. The unemployment rate climbed more than anticipated to 5% over the three months to September, the highest level in four years. Payroll numbers fell, and wage growth moderated to 4.6%. This evidence of labour market softening has heightened the probability of a Bank of England rate cut in December. The shrinking workforce also signals weaker tax revenues, intensifying the budget’s challenges and the risk of tighter spending to avoid market backlash. However, the Office for Budget Responsibility (OBR) has marginally upgraded its forecasts for the UK economy, giving the Chancellor a little more room to manoeuvre. These improved projections mean the government may have slightly higher tax revenues, which could help soften the impact of difficult budget decisions. UK equities held steady in this environment, with the FTSE All Share Index ticking up +0.3% and the more domestically oriented FTSE 250 matching that gain at +0.3%.
Japan stood out for its resilience, with the MSCI Japan advancing +1.1% amid broader global jitters. While AI concerns weighed on the Japanese tech sector, policy expectations under the new Prime Minister Sanae Takaichi provided a boost. She is expected to pursue pro-growth policies and favour a more cautious approach to raising interest rates by the Bank of Japan. Europe also delivered a strong performance, with the MSCI Europe ex-UK index rising by +2.9% over the week.
In the US, the 43-day government shutdown ended mid-week with House approval of funding through January, averting deeper disruption but revealing the backlog of delayed data, such as the much-anticipated September jobs report, which will be released on 20th November. Initial relief faded, and volatility increased as investors awaited the release of backlogged economic data and started to question the sustainability of the AI boom. Major tech names were hit hard, including Nvidia, which ended the week down -4.5% as investors grew concerned about valuations and what level of return companies will earn on the staggeringly large investments in AI. The S&P 500 ended the week up +0.2% but the tech-heavy Nasdaq 100 index fell -0.1% over the week, reflecting concerns on AI tech-stocks names.
Overall, the week laid bare vulnerabilities in tech dominance and the uneven path of policy normalisation, even as monetary tailwinds offered some offset. In this fluid setting, a diversified and disciplined investment approach remains the preferred approach to mitigating risks and capturing opportunities.
All performance figures are stated in Sterling terms, unless otherwise specified.
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