CIO market update for November 2025

In this CIO market update, Rob Hogg reviews November’s key market drivers. Global markets were driven by shifting expectations for U.S. rate cuts and concerns about an AI-driven bubble, leading to early-month volatility as hawkish and then dovish Fed commentary moved interest rates and equities in opposite directions. U.S. and European equity markets ended mixed to flat, while Asian and especially Australian markets weakened, with Australia hit hard by persistently high CPI readings that pushed local bond yields higher. Sticky inflation has reduced the likelihood of RBA rate cuts, and despite this shift, the AUD remained broadly unchanged against the USD.

Jump to ⏬:  USA  |  AUS  |  Outlook

Along with increased investor concerns about whether an AI bubble is forming, evolving views about whether or not the US central bank will cut rates in December were the two key market moving themes in November. In Australia however, it was news of another surprisingly high CPI outcome that had the most market impact.

By reference to the “aviary scale”, monetary policy makers are often described as either “hawks” or “doves” – hawks are those policy makers who tend to prescribe a more restrictive (tighter) policy stance while doves tend to prescribe a more accommodative (looser) stance. In November the hawkish members of the US central bank’s policy committee tended to dominate the news flow in the first half of the month, each talking down the likelihood of a December rate cut (due to inflation concerns). The dovish members tended to dominate the news flow in the second half of the month, highlighting the weakening labour market as a reason for additional monetary stimulus. In response to this hawkish/dovish pattern, shorter term market interest rates rose in the first half of the month (and the equity market fell) while, in the second half of the month, market interest rates fell and equity markets recovered.

Over the full month US equity market indexes were mixed with the NASDAQ weakest, falling -1.5%. However the broad-based Russell 2000, with its constituent companies most sensitive to changes in domestic US economic and interest rate prospects, actually ended the month higher, rallying by 0.85%. The key S&P 500 index ended the month near unchanged. Most European equity markets also ended near unchanged while Asian markets ended weaker, especially the Japanese Nikkei Index which fell around 4% (following a strong rally in October).

The local equity index was again one of the poorest performers globally over the month, falling by 2.6%, pressured by the continued downward revision to rate cut expectations. This was the third consecutive month that the local equity index has performed comparatively poorly, a performance pattern that has coincided with the marked change to investors’ rate cut expectations over the past three months, a trend that began with the release in September of the surprisingly poor monthly CPI for August.

It was the late month release of the October CPI that particularly pressured the local interest rate market during November and caused Australian market interest rates to rise over the month – the 3-year yield by 0.27% to 3.88%, and the 10-year yield by 0.22% to 4.52%. The pattern of rising rates in Australia was again in contrast to the global pattern with US and European yields generally little changed over November. Due to “sticky” inflation, the case for further rate cuts by the RBA is substantially diminished, and it will be interesting to see if this theme develops globally with a number of other countries also experiencing “sticky” inflation.

The US dollar (USD) was near unchanged against most currencies, including the AUD, during the month. It was surprising that the continued downward revision to RBA rate cut expectation didn’t push the AUD/USD higher over the month as rising interest rate expectations have generally pushed currencies higher in 2025.

Key market movements over November were as follows:

• S&P/ASX300 Accumulation Index (i.e., including dividends) declined by 2.6%.
• S&P/ASX Small Ordinaries (Australian Small Companies) Accumulation Index fell 1.5%.
• US equity market (S&P 500) rose fractionally (+0.1%).
• Australian 10-year bond yields rose by 0.22% to 4.52%.
• Australian 3-year bond yields rose by 0.27%, closing at 3.88%
• The US 10 bond yield fell by around 0.06%, closing at 4.01%, while 2-year yields fell by just 0.09% to end at 3.49%
• The Australian dollar was near unchanged against the USD, closing the month around AUD/USD 0.6550.

Key market movements over the month

In this monthly update, we look at:

• Risks to the current market consensus
• Are we in another tech bubble?
• Another stable coin to be launched as the global payments system evolves
• Changing monetary policy expectations shape market performances in November
• On some measures, the US economy is still performing well
• But on other measures, such as employment, the US economy is slowing. If the Fed cuts rates in December, the weakening employment trend will be the key cause
• In Australia, the inflation background ties the RBA’s hands
• Australia experiencing its own datacentre capex boom
• The outlook

Risks to the current market consensus

Equity and bond markets seem to have an assumed “soft-landing” scenario implicit in their pricing. This is a scenario comprising expected further rate cuts and a gentle slowing in growth. This is the combination of supportive economic dynamics that has continued to support US and global equity markets in 2025, augmented by solid earnings growth expectations.

The importance of the assumed rate cuts was amply demonstrated by the pattern of market performances in November when, as noted above, hawkish members of the US central bank’s policy making committee (Federal Open Market Committee – FOMC) drove rate cut expectations lower in the first half, while the opposite occurred in the second half. Bond and equity prices moved in near lockstep with this pattern – lower in the first half, before recovering in the second half. This pattern demonstrates again how dependent markets are on the rate cut outlook – anything that upsets the market’s expectation for further rate cuts (perhaps “sticky” inflation), is a risk to market pricing.

Regarding the risks to the soft-landing scenario, with virtually no official US data released in November, the current pace of the economy is more difficult to assess. When US authorities are again regularly releasing economic updates it will be the employment related releases (non-farm payrolls) that will likely get most attention (along with CPI updates). In the vacuum left by the absence of official employment updates, a number of privately produced surveys of the labour market have been pointing to a sharp weakening in employment trends in the past month or so. If this pattern is repeated in the upcoming official data, the market’s sanguine view about a soft-landing could be shaken.

In Australia, the market reaction when rate cut expectations prove to be too optimistic could be clearly seen again in November when the surprisingly high October monthly CPI release caused the market to unwind what remained of its rate cut expectations, leading to a fall in bond prices (higher yields).

The risk in Australia is that the still-modest pickup in activity that has followed the RBA’s three rate cuts earlier this year could be snuffed out by the disappointment of no additional rate cuts.

Review of the month’s major developments

• USA •

Are we in a bubble?

Last month we noted that after such a great run over the past twelve months, one of the key questions facing investors is whether “are we in a bubble”?

The term bubble in financial markets is most usually associated with share prices, usually after the equity market has performed strongly and valuation metrics have risen (e.g.: price/earnings ratios).  Bubbles can occur when there is hyper-bullishness about the prospects for supercharged growth arising from a new technology. In a bubble, this hyper bullishness permeates the broader economy and, as a consequence, it’s bursting can have a significant economic impact  The last such financial market focussed bubble resulted in the tech wreck in 2000 and a recession in the US.

There is no doubt that, in some pockets of the market, there are some indicators pointing to bubble like characteristics including a significant increase in valuations, and high market concentration, such as we see with the Mag-7.

However, the significant rise in the tech sector has in part been driven by earnings growth, not just irrational speculation (although that does exist in some pockets, we believe). As well, many of the leading tech companies have strong balance sheets, not overly burdened by debt.

In addition, looking at traditional PE ratios, the valuations of the technology sector while high, are not yet at levels consistent with historical bubbles.

Our conclusion, therefore is that there will likely be market pullbacks, much as we witnessed in November, but they are probably more likely to be healthy retracements, not bubbles bursting. That of course comes with caveats about the lack of economic data reports coming out of the USA.

In considering whether we might be in a bubble, last month Goldman Sachs (GS) published some research looking at the types of market and macro dynamics that accompany a true macro bubble, in particular the dynamics that were apparent in the Dotcom and US housing bubbles. Their conclusion is that, although valuations are high, we are not yet clearly in a bubble. The GS analysts note that the 1990s experience highlights the macro warning signs that accompany a bubble:

• a sustained rise in investment spending,
• a clear peak in profit margins,
• an erosion in corporate financial (or current account) balances that would flag that the AI cycle is entering a new stage,
• a significant shift towards debt financing and leverage; and
• a rise in equity volatility or credit spreads.

Presently, while each of these factors seem to be present, they are less extended than they became in the Dot-com bubble. However, in contrast to the economic situation in the late 1990s, the macroeconomic foundations appear less robust now, in particular the current record low level of consumer optimism and signs that the labour market is softening.

AI capex – so far smaller than in prior booms

Source: Goldman Sachs

Another way of thinking about where we might be in the evolution of that bubble forming is to compare current equity, bond, commodity and currency market dynamics with the market dynamics that existed as the Dotcom bubble peaked and burst.

These variables include the recent market performance of

• industries and investment styles (as measured via stock market performances),
• interest rates (2-year, 10-year, yield curve (2s10s)),
• credit (US Investment Grade and High Yield),
• the USD; and
• commodities (oil, gold, industrial metals)

This technique is called “similarity analysis” and UBS analysis shows that today’s market patterns are most similar to those that prevailed during the time period between March ’97 and February ’99, centred at March 1998 – still more than eighteen months prior to the time of the bubble bursting. The analysis is reproduced below with differing market regimes denoted by different colours. The colour of today’s market regime can be seen to most closely match the “yellow” regime that existed around 1998.

Pattern similarity to current regime

Source: UBS

Another stable coin to be launched as the global payments system evolves

Klarna (the Swedish buy now-pay later firm) announced the launch of a payment stablecoin during the month, launching KlarnaUSD on a blockchain created by payment company Stripe.

Stablecoins are a form of privately issued digital coins backed by short-term securities or cash-like assets, overwhelmingly linked to US dollars. Stablecoins are completely different to crypto currencies such as Bitcoin which are not asset backed.

Klarna expect the digital token to be used for international payments, internally at first, but then for merchants and eventually for consumer payments according to the Financial Times (FT). Klarna said the stable coin would allow it to “dramatically reduce costs for both consumers and merchants” which is likely particularly when moving large amounts of money globally by cutting out parties such as the Swift network. The FT cite data from Citigroup that shows that USD280 billion of stablecoins are in issuance as at end September, up from USD200 billion at end 2024.

Changing monetary policy expectations shape market performances in November

Although the market’s interest rate expectations were buffeted by the release of unofficial surveys during November, speeches and quotes from US Federal Reserve officials (“Fed speak”) had the largest impact in framing expectations for the Fed’s potential policy move at their next meeting on December 10.

Earlier in the month the more “hawkish” members of the Fed’s policy making committee seemed to have all the airplay with members emphasising concerns regarding upside inflation risk. However, around mid-month the tone of Fed speak shifted dovishly, influenced most by  NY Federal Reserve  President John Williams whose most poignant comments included:

• “Downside risks to unemployment have increased while upside risks to inflation have eased”; and
• “I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the rate of neutral.”

Fed fund futures and shorter-term bond yields adjusted immediately to these comments, because of the close alignment between Fed President John Williams and Fed Chair Jerome Powell. The impact later in the month of Williams’ comments and comments from other policy “doves” can be seen in the pattern below of the yield on the US 2-year government note which rose until mid-month on “hawkish” Fed speak, before slipping lower into end month as more dovish members gave their views on the policy outlook. Equity markets followed a similar pattern, weakening as yields rose, but then rallying into month-end as yields fell.

US 2-year government note yield (%) – October 15 – November 28

Source: Bloomberg

On some measures, the US economy is still performing well

One of the most optimistic reads on the US economy in November was contained in the “flash” measure of US business activity produced by S&P Global. This measure showed that US growth accelerated for a second successive month in November, boosted by the largest rise in new business seen so far this year. Confidence in the outlook for the year ahead also improved markedly, notably reflecting reduced worries over the political environment and hopes for increased policy support to business.

The improvement was led by the service sector.  However, the factory sector reported a marked slowing in order book growth alongside an unprecedented buildup of unsold stock. The pace of job creation meanwhile remained only modest.

S&P Global US Flash PMI

Source: S&P Global

But on other measures, such as employment, the economy is slowing. If the Fed cuts rates in December, the weakening employment trend will be the key cause

With no official update by the US Bureau of Labor Statistics regarding the employment situation since the September report, private sector surveys are getting more coverage as investors search for a guide to the very latest trends in the US labour market.

In November markets moved (interest rates fell and equities (Russell 2000) declined 1.9%) following the early November release of two private surveys of the employment situation.  One of these surveys was produced by global outplacement firm, Challenger Grey and Christmas (CGC), who compile a list of publicly announced job layoffs. The CGC survey revealed that job cuts in calendar year 2025 to date (to October) now total 1,099,500, an increase of 65% from the same period of 2024, while the monthly total of layoffs in October alone was the highest for an October since 2003. DOGE-related job losses seem to be key in driving this weakness – both government employees and contractors.

Announced job cuts

Source: CGC

Another privately compiled survey of the labour market was released by Revelio Labs (RL). The RL report suggested that in October the US economy lost 9000 jobs, with employment losses in the government sector again key.

Monthly change in non-farm employment (compiled by Revelio Labs) – thousands

Source: Revelio Labs

Revelio Public Labor Statistics (RPLS) draw from 100+ million U.S. profiles that mirror the national workforce and cover two thirds of all employed individuals (a larger sample set than the govt-produced surveys).

In another newly created series measuring the US employment market, the ADP group have launched a four week moving measure of jobs growth. Over the four weeks ending Nov. 8, 2025, this measure revealed that private employers shed an average of 13,500 jobs a week.

Four week moving average of private sector job creation

Source: ADP

Additional confirmation of the weakening labour market came in the Federal Reserve’s Beige Book – a survey of households and businesses carried out by the banks in the federal reserve system. Key was the Beige Book’s finding that

• “employment declined slightly over the current period with around half of Districts noting weaker labor demand”.

It seems increasingly likely we’ll see a negative print when the official data are finally released for the latter months of 2025. If so, this is a risk to the consensus “soft-landing” scenario with downside equity market and yield curve implications

• AUS •

In Australia, the inflation background ties the RBA’s hands

In late November the ABS released their first version of the new monthly Australian CPI report. The news shocked market participants again with yet more evidence of higher and more broadly-based inflation pressures than the RBA and most market forecasters had expected. For October, the report revealed that inflation accelerated to 3.8% over the year, up from 3.6% over the year to September. The key underlying Trimmed Mean measure also rose, touching 3.3%, up from 3.2% in September.

The RBA cannot cut rates with inflation at these levels and, following the release, markets moved to completely price-out the likelihood of any further rate cuts in 2026. Instead, the market is now leaning toward pricing a rate hike in calendar 2026.

All groups CPI and Trimmed mean, Australia, annual movement (%)

Source: ABS

Australia experiencing its own Datacentre capex boom

Driven by a large rise in spending on data centres, and investment in air transport, private new capital expenditure (capex) rose 6.4% in the September quarter to be 6.9% higher than the September quarter 2024. Investment in data centres reached new highs, driving the strong rise in equipment and machinery capex for the information media and telecommunications industry, which went up 91.5% in the quarter. This industry is now the third biggest investment sector, outpacing manufacturing for the first time and second only to the mining and transport and warehousing industries.

The outlook for investment looks increasingly positive too – this release includes the fourth estimate for planned capex for 2025-26 with businesses upwardly revising their expected capex for 2025-26 by an additional 9.4% compared with their estimate made three months ago.

Information media and telecommunications building and equipment investment

Source: ABS

• CIO market update: Outlook •

We remain cautious about the market outlook. This is particularly due to the evolving policy dilemma in the US, but also due to the elevated level of market valuations. If, after the US government shutdown finishes, the next few jobs reports are weak (or negative) and inflation pressures remain, it will be difficult for the Fed to decisively cut rates.

In November, as was the case in October and September, it was abundantly clear in market performances that any watering-down of rate cut expectations is negative for equity markets – witness the Australian equity market in the past three months (falling in September, barely rising in October and retreating again in November) as rate cut expectations were wound back. And in the US the equity market clearly followed the flow of news regarding rate cut probabilities during November. Against the background of elevated global equity valuations, there is little room for disappointment from either fewer than-expected expected official policy rate cuts or poorer-than- forecast company earnings.

We are relatively more sanguine about prospects in Australia given that it seems that the domestic economy is beginning to show signs of recovery following the RBA rate cuts this year (in contrast to the direction of the US economy which seems to be slowing). But here the risk is that the nascent recovery is challenged by the lack of additional expected monetary stimulus.

We remain cautious, but not significantly underweight – we are looking for opportunities to invest in high quality companies that have not kept up with the market. This has been playing out recently with the strong performance of smaller companies, which have for many years lagged their larger counterparts. But there are not just small companies offering good value. There are many bellwether, traditional large cap companies (not tech), that offer good value in an absolute sense.

It is there that we are focusing our attention.

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