Global House View
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Article Type
Insights
Topic
Macro
Published
October 23, 2025
Read time
5 mins
Authors
Frank Rybinski, CFA
Jacob Vijverberg, CFA
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Global House Views

All investments contain risk and may lose value. The above overview is intended to illustrate major themes for the identified period. No representation is being made that any particular account, product, or strategy will engage in any or all of the themes discussed. Our asset class overweights/underweights in our model portfolio as of October 16, 2025 on a 3-month horizon. These views should not be construed as a recommended portfolio. This summary of our individual asset class views indicates strength of conviction and relative preferences across a broad-based range of assets but is independent of portfolio construction considerations.

 

Our asset allocation decisions - in short

 

Cross asset allocation: We have adopted a modest overweight position in fixed income relative to cash within our cross-asset allocation, primarily because central banks are in the process of reducing interest rates. The Fed and the ECB’s ongoing rate cuts are expected to make fixed income assets more attractive, as lower rates typically boost bond prices and enhance returns for holders of longer-duration securities. In contrast, the yield on cash investments will decline in this environment, likely making them less appealing. This approach reflects our view that central bank actions to lower rates will directly benefit fixed income holdings, particularly during periods of heightened market volatility triggered by global events such as the Trump Administration’s announcement of widespread import tariffs on April 2. 

 

Within fixed income: We maintain an overweight position in government bonds, largely driven by the potential for rates to come down now that the Fed and the ECB are loosening their policies. Conversely, we are underweight investment grade credits in both the US and the EU. Current spread levels remain low and are not factoring in any inherent risk. This constrained spread environment diminishes the relative appeal of credit markets, especially given the potential for further widening should geopolitical and trade risks escalate. 

 

Within equities: In the equity model portfolio, we have an underweight to the UK and Japan, while overweighting Asia and REITs. Valuations across many segments now appear stretched relative to historical norms. Despite this, robust earnings growth continues to underpin several leading sectors, particularly those benefiting from the current surge in enthusiasm for AI. This AI-driven optimism has propelled a select group of stocks, often overshadowing the broader market, where numerous sectors are lagging and have failed to keep pace with headline gains. We expect that developed Asian semiconductor companies in particular will benefit more from increased demand. Conversely, REITs stand to gain from the prospect of lower interest rates, which would reduce borrowing costs.

 

Within currencies:  The US dollar, though still the world’s dominant reserve currency, is beginning to lose some of its traditional safe-haven appeal. This shift is largely attributable to widening fiscal deficits, ongoing policy uncertainty and changes in global capital flows—factors exacerbated by the unpredictability of actions from the Trump administration. While the dollar may experience periods of short-term strength, overall market confidence in US institutions appears to be waning. In contrast, the outlook for Europe is becoming more positive. Germany is preparing to enact significant fiscal expansion, and, on the margin, the ECB is now taking a more hawkish stance compared to the US Federal Reserve. These developments provide scope for the euro to appreciate, thereby exerting additional downward pressure on the dollar.

 

Meanwhile, Japanese monetary policy remains highly accommodative given the country’s current growth dynamics. Should the Bank of Japan decide to tighten its policy, it could strengthen the yen and boost sentiment across Asian foreign exchange markets. Notably, the yen has not displayed its typical safe-haven behaviour, likely due to concerns about Japan’s fiscal sustainability—issues that are arguably second only to those faced by the UK.

 

Speaking of the UK, fiscal challenges have once again come into sharp focus for the markets. That’s not a result of any particularly negative domestic news—recent macroeconomic data has in fact been relatively stable—but rather it reflects the fragile market sentiment, which remains highly sensitive to volatility in global fixed income. With the country’s budget scheduled for release November 26, market participants are increasingly aware that this event could prove decisive for UK assets. Ultimately, fiscal vulnerability remains the Achilles’ heel of the pound sterling.

 

Market Commentary

 

Despite higher interest rates and ongoing uncertainty, the US economy remains relatively resilient. Companies are making significant investments in developing AI applications, which are providing a boost to economic activity. Over the longer term, the extent to which AI drives additional economic growth will depend on how effectively those technologies are implemented. The expansion of AI infrastructure has so far to helped delay the anticipated slowdown in the US economy. Additionally, strong equity markets continue to support consumer spending.

 

In contrast, Europe continues to struggle with persistently low growth. The industrial sector remains in crisis and ongoing political polarization, along with the war in Ukraine, contribute to persistent uncertainty.

 

Trade tariffs have different effects on inflation across regions: They are pushing inflation higher in the US, while dampening inflation in Europe. The current environment involves more than just tariffs—recent US economic policies have led investors to question what future actions might emerge from Washington. This policy uncertainty has weakened the US dollar and driven up the price of gold as investors seek safe-haven assets.

 

European government bonds delivered slightly negative returns as yields rose in response to increased issuance. However, ongoing geopolitical uncertainties and signs of an economic slowdown within the eurozone could eventually lead to lower yields. Notably, credit spreads for countries like Italy and Spain continued to narrow, while France struggled to get its budget under control, resulting in widening credit spreads there.

 

Corporate bonds again performed well. The narrowing of credit spreads reflected investors’ ongoing confidence in corporate credit quality, despite subdued economic growth. The persistent search for yield remains a key driver. Corporate earnings have generally been robust. However, some sectors continue to face structural challenges to their competitiveness and any economic downturn could quickly impact results. Current credit spreads do not appear to fully reflect these risks.

 

Global equities once more posted positive returns. US stock markets reached new record highs, driven by strong corporate earnings and sustained enthusiasm around artificial intelligence. The so-called “Magnificent 7” AI-focused technology companies remained the prime movers of the US market, delivering strong quarterly results and maintaining an optimistic outlook. Expectations of interest rate cuts by the Federal Reserve also contributed to the positive sentiment.
In Europe, equity markets recovered further from the shock of “Liberation Day” in April, with the MSCI Europe Index climbing in the third quarter. While the threat of new US import tariffs on EU goods caused some volatility, investors largely shrugged it off, maintaining faith in diplomatic solutions. Ultimately, a trade deal was reached, though its terms remain unfavorable for Europe given the one-sided nature of the tariffs.

 

Asian markets showed a mixed performance. In China, the economy displayed signs of stagnation in September, including a slight contraction in industrial activity. Nevertheless, Chinese equities performed strongly, buoyed by optimism surrounding AI. India’s market remained robust despite high valuations, while Japanese equities benefited from foreign capital inflows, partly due to improvements in corporate governance.

Important Disclosures

Authors

Frank Rybinski, CFA
Head of Macro Strategy

Frank Rybinski, CFA, is head of macro strategy responsible for guiding the firm’s global macroeconomic view as it pertains to tactical and strategic asset allocation.

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Jacob Vijverberg, CFA
Head of Asset Allocation

Jacob Vijverberg, CFA, is head of asset allocation. He is responsible for both strategic and tactical asset allocation. The team is managing a wide range of multi-asset funds  

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