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During the autumn, the investment markets have experienced strong development, but also momentary nervousness. The strong development of the stock market has been driven by familiar factors, namely technology companies and generally strong earnings growth. The fixed income market has generated good returns, as interest rate developments have been moderate and in the United States the Fed has eased monetary policy. Economic growth is expected to continue to be quite stable and corporate earnings growth will provide momentum for stock market development, so we continue to overweight equities in our investment recommendations.
Strong development in the stock market
In October, stock markets continued to rise. Global equities had total return of 3.8 percent in euros, with the Helsinki Stock Exchange in particular standing out with a 9.4 percent return. North American and European markets both rose more than three percent, while emerging markets saw a 6.6 percent return. Indian stock markets rose strongly, but China remained flat.
The technology sector continued to enjoy strong momentum, and investments by OpenAI and other AI companies boosted the prices of companies in the sector. Another positive AI news in October was Nokia’s strategic partnership with chipmaker Nvidia. Nokia’s share price rose 20 percent on the news. Thanks to the October price increase, Nvidia is currently the world’s most valuable company with a market value of $5 trillion. Healthcare made headlines with the agreement between Pfizer and the Trump administration, which temporarily boosted the entire industry in both the United States and Europe.
Stable growth outloook
The outlook for economic growth through the end of 2025 is cautiously positive, although there are regional differences and uncertainties. In October, the International Monetary Fund (IMF) raised its estimate of global economic growth for the current year. The economy is expected to grow by 3.2 percent this year and 3.1 percent next year. According to IMF economists, growth estimates are now broadly in line with the average of the past decade, although growth is forecast to slow slightly next year. On the positive side, growth is expected to pick up again toward the end of next year. However, growth is still hampered by uncertainty related to trade policy, which is holding back investment and business confidence.
The leaders of the United States and China reached an interim trade agreement at their October meeting that eases tensions between the countries. The parties agreed to limit additional tariffs and China will postpone export restrictions on rare earth metals. In addition, China will continue to buy US agricultural products. However, the agreement is preliminary, and not all controversial issues have been resolved, so negotiations are likely to continue in the future. The market has been nervous about trade tensions between the US and China on several occasions, but based on the latest statements, the spirit of the negotiations is quite constructive.
Regionally, developments are mixed: In the United States, the outlook for businesses has improved and the earnings season has been strong, supporting market sentiment. In the euro area, business confidence has also improved, especially in the service sector, but challenges still persist in industry and especially in Germany. However, growth in the euro area should accelerate next year, especially thanks to Germany's stimulative economic policy. Economic growth in China has been better than expected, but problems in the real estate sector and industrial overcapacity are overshadowing the outlook.
In the United States, the federal government shutdown has continued for several weeks, but the economic impact has so far been small. Several important economic figures have not been published during the shutdown, most importantly official statistics on labor market developments. Figures published by the private sector indicated that the employment situation has continued to develop sluggishly. Confidence figures for the industry and service sectors in the United States have been mixed, and tariffs, inflation and weak demand continue to be a concern, especially for smaller companies.
Moderate easing is still expected from the Fed
Inflation development has remained moderate in both the United States and Europe, giving central banks room to maneuver in monetary policy. In the United States, the Fed cut its key interest rate in October and signaled that the next steps in monetary policy depend on economic developments. Markets expect the Fed to continue its moderate easing of monetary policy in the coming months. The European Central Bank (ECB) left its key interest rate unchanged at its October policy meeting. With inflation in the euro area currently at the central bank’s 2 percent target, markets expect the ECB to maintain its current monetary policy stance in the coming months.
Earnings season has started strongly in the USA
The Q3 earnings season has started briskly in the United States, but developments in Europe have been more modest. In the United States, the earnings of large banks and technology companies have exceeded expectations, and over 80 percent of the companies in the S&P 500 index that have published their results so far have reported figures that are better than expected. With more than half of the companies in the S&P 500 index having reported their figures, it would seem that companies would achieve earnings growth of almost 14 percent in the third quarter compared to a year ago. At the start of the earnings season, analysts expected earnings growth from companies of just under nine percent. The revenue growth of the companies in the S&P 500 index has been almost eight percent compared to the third quarter of last year.
In Europe, corporate earnings growth is clearly more modest than in the United States. For the third quarter, the year-on-year earnings growth of companies in the broad STOXX 600 index is modest at best, and for the whole of 2025, earnings in Europe are expected to decline by around one percent. Earnings are expected to turn to clear growth next year.
Technology companies are driving up market valuation multiples
The stock market is currently in a high valuation mode, particularly thanks to large technology companies. P/E ratios have risen in recent years and are now above their average. This suggests that stocks are not particularly cheap, but on the other hand, the profitability and growth prospects of companies, especially in the technology sector, support higher valuation levels. Overall, investor sentiment is cautiously optimistic, although uncertainty and caution about the future are also noticeable in the market.
Stock market valuation multiple (P/E ratio): North America 23, Global stocks 20, Finland 16, Japan 16, Europe 15, Emerging markets 14.
It is very possible that at some point the market will see a respite in the rise in share prices. However, corrections are part of the normal market cycle, and timing them is challenging – smaller declines happen every year, but larger corrections are rarer. The most important thing for an investor is to stay in the market, diversify your investments and take advantage of long-term growth. Staying out of the market can be costly, as the best days for performance often fall in the eye of the market storm. Therefore, patience and diversification are the best tools for an investor, even in the current market environment.
Europe and the financial sector overweight
We continue to overweight Europe in our regional recommendations, as we expect corporate earnings growth to accelerate as the economy recovers and regulations become simpler. The valuation of European stocks has increased somewhat with the price increase, but on the other hand, the strengthening of the longer-term growth outlook allows us to apply higher valuation multiples than before.
In our global sector allocation, we continue to overweight the financial sector despite the good performance so far this year. We expect the sector to continue to receive support from still high interest rates, growing loan volumes, easing regulations and good development of investment bank activities. In turn, the defensive consumer staples sector is kept underweight in the recommendations.
Attractive interest rates with a diversified bond portfolio
The bond market has seen moderate developments in recent weeks. US and German 10-year government bond yields fell slightly in October. Eurozone inflation has remained stable, so government bond yields are likely to continue to develop quite moderately in the coming months. In the corporate bond market, interest rates are still quite attractive, but corporate credit spreads are currently at very low levels. Investors should not expect much additional performance in the way of narrowing spreads. In the fixed income portfolio, we recommend a neutral weighting for all bond classes in November. With a diversified bond portfolio, investors currently have access to attractive interest rate of around three and a half percent, which is clearly better than the current interest rate of around two percent in the money market. In our investment view, money market investments are underweight.
