Market Review 3rd November 2025

Everything you need to know, Simplified!

Summary

• The top ten stocks in the US 500 now make up over 40% of the index, far above the 26.7% peak during the dot-com bubble - market leadership has rarely been this narrow

• The equally weighted index lagged the market capitalisation-weighted version by 2.7% last week as seven of eleven sectors fell, yet a handful of megacap tech stocks pulled the benchmark to new highs

• Earnings remain strong, with forward earnings per share (EPS) hitting a record US$299.61 and Q3 results showing growth above 10% versus forecasts of around 6%

• Artificial Intelligence (AI)-related capital expenditure (capex) is forecast to rise nearly 30% next year to more than US$500bn, a scale of investment not seen since the dot-com era - though for now, growing demand appears to justify it

• The US Federal Reserve (Fed) delivered another cautious rate cut, but with dissent on the committee and debate over the true ‘neutral’ rate ranging from 2.5% to 3.75%, the long-term policy equilibrium is unusually uncertain - markets now see only a 68% chance of another cut in December

• The Bank of England (BoE) are expected to keep rates on hold this Wednesday, while signalling that the direction of rates is still down.

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Market Review

Tech earnings drive a narrow market to fresh highs 

The top ten stocks in the US 500 now make up more than 40% of the index - a new record, and far beyond the 26.7% peak concentration seen during the dot-com bubble. Market leadership has rarely been this narrow. 

So far this decade, those ten giants have accounted for over half (55.5%) of the index’s total return. Last week was among the narrowest on record: the equally weighted index lagged the cap-weighted version by 2.7%! Seven of eleven sectors fell, yet a few megacap technology stocks pulled the benchmark to another all-time high.

The megacaps are leading the charge amongst a continuously ‘fabulous’ earnings backdrop. Aggregate forward earnings per share rose to another record high of US$299.61 during the week. Q3 results are comfortably beating expectations, with a blended growth rate above 10% compared to forecasts of around 6%. 

Much of that strength reflects robust and still-accelerating demand for AI and core digital infrastructure. The AI boom is proving less about AI software and more about powering the data infrastructure needed to run it, which now underpins the profits of the largest US tech companies. 

Last week’s earnings also showed the sheer scale of capital expenditure by the hyperscalers. Current analyst forecasts point to nearly a 30% increase in AI-related investment next year, from about US$400bn to over US$500bn. The justification for that spending is clear enough - demand for AI capacity is rising faster than supply – but there’s little historical precedent for growth on this scale. US tech capex over the past five years has grown more than it did between 1999 and 2002, and almost as rapidly as the entire Technology, Media and Telecommunications (TMT) sector at the height of the dot-com boom, according to Absolute Strategy Research. 

That scale of investment raises questions about when it will translate into profits, but as long as demand for AI capacity and cloud computing revenues continue to grow, it may well be justified this time. 

Fed fog 

The US Federal Reserve cautiously cut interest rates on Wednesday. The government shutdown has left policymakers flying blind without the usual stream of official data. Chair Jerome Powell put it simply: “When you’re driving in the fog, you slow down.” 

After two consecutive rate cuts, his comments last week suggested a December move is far from certain. There was an unexpected and notable dissenting vote from Jeffrey Schmid, Kansas City Fed President, to keep rates on hold. Following the meeting, the market cut the odds of a December rate cut from 96% to 68% and Treasury yields rose with the 10-year yield closing the week at 4.08%. 

Policy uncertainty runs deeper than the absence of official data. Debate inside the Fed has intensified over where the new ‘neutral’ rate might lie - the level at which policy is neither restrictive nor stimulative. After 150bps of cuts this cycle, the Fed funds rate now sits at 3.75%-4.0%; a stone’s throw away from the median perceived neutral of c.3.0%. 

Estimates of where exactly the neutral rate is among Federal Open Market Committee (FOMC) members span from 2.5% to 3.75%, with only a handful clustering around the median. That divergence highlights an unusual lack of consensus. The long-term equilibrium policy expectation should not be this variable. 

For markets, this renewed uncertainty over where ‘neutral’ really lies makes the path ahead harder to read and the tails fatter. Powell’s message, however, remains clear enough: policy is not on a preset course, and for now, the Fed prefers to move cautiously through the fog towards a more neutral stance. The real question is whether the Fed is easing into strength - as the AI boom accelerates and financial conditions continue to loosen.

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The week ahead

Wednesday: BoE rate decision 

Our thoughts: It is set to be an interesting meeting for the BoE this Wednesday and the first in recent months where there is a tinge of uncertainty around the policy outcome. The market expects the bank to hold rates steady at 4.0% but there is about a 30% probability that rates are cut. With headline consumer price index (CPI) running at nearly twice the BoE's target and interest rates close to neutral, we think the central bank will signal that the direction of rates is still down, but that it's not in a rush to ease further. 

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