October 2025: Reluctant Bulls and Rising Bots.

In episode #17 of The Active Investor with SGH – November 2025: Reluctant Bulls and Rising Bots. – In this episode of The Active Investor, SG Hiscock & Company’s Executive Chair Steve Hiscock and CIO Rob Hogg break down October’s market moves — from the U.S. government shutdown and Fed rate cuts to gold’s volatility and Australia’s inflation surprise. They discuss whether the recent surge in U.S. tech signals a bubble, why they don’t think we’re there yet, and where investors can still find opportunities amid high valuations.

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October 2025: Reluctant Bulls and Rising Bots.

Transcript

Steve Hiscock:

Hello to everyone listening to our podcast, the Active Investor with SGH. I’m Steve Hiscock, the chair of the company, and it’s my pleasure to be your host. In today’s podcast, we’ll be looking at what happened over October 2025, and we’ll be discussing the outlook going forward. This podcast is being recorded on Wednesday the 5th of November, 2025, and joining me again today is our Chief Investment Officer, Rob Hogg.

Hi Rob.

Rob Hogg:

Hey, Steve, how are you?

Steve Hiscock:

Very well, thanks. Thank you. Welcome back again. Obviously unpredictability is the key again as we would expect. But we’re also hampered by the fact that in the US the closure of parts of the government have mean that we are being starved of reports. Is that right?

Rob Hogg:

Yeah, that’s right. Except for probably one of the two most important ones, the consumer price index, that did come out, and that’s as I understand it, only because the people that put it together were specifically asked to go back to work, but you’re right. Apart from that, the US government shutdown continues as we speak and one of the consequences of that has been that really no official numbers have come out at all in the US for the entire month.

Steve Hiscock:

Which obviously makes it hard for investors to really work out what’s going on, although there were partial indicators, which we might speak about later that can help us assess that. Do you want to start by giving us an update of what actually happened over the month?

Rob Hogg:

Yeah, look, it was another month which saw equity markets across the globe rise in the US.

The S&P was up around 2.5%. Standout market for the month was Japan up around 15% for the month, and that seemed to be all about increased optimism about Japanese growth. And that was really all on the back of a new Prime Minister elected during the month. So Japan, the standout. US is around 2.5% as I said.

Australia was a little weaker than that. Indeed the Aussie market was one of the weakest, again, for the months with the broader market up by just around a half a percent. And we’ll come back to the reasons for that.

Relatively quiet months for bonds as well. Our 10 year bond here ended the month near unchanged at 4.3%. And US bonds, they didn’t move terribly much either. One of the bigger moves over the month, the US dollar up a couple of percent. And against the US dollar, the Aussie dollar was a little bit softer over the month, but I suppose as you’d expect if there isn’t much in the way of economic news, there won’t necessarily be much in terms of market movement.

There was some volatility intra months, so within the month. But if we look point to point a relatively quiet month across the globe.

Steve Hiscock:

Okay let’s look at some of the things that did happen in the month. First of all, the Fed made a move.

Rob Hogg:

Yes, they did pretty much as expected.

They did cut rates over the month moving the policy target there for the Fed funds rate down by a quarter of a percent. They also announced an end to quantitative tightening. That’s the process of shrinking the Fed’s balance sheet. So in a month or so, they will stop doing that, but both of those moves the quantitative tightening finishing and the rate cut, they were both very much expected.

What wasn’t expected though, were some of the bits and pieces of news that came out of the meeting that was associated with this rate cut. And by that specifically the Fed’s always been reasonably transparent about things like voting, which the RBA now is, and one of the things we saw over the month was that one of the committee members had dissented from the vote to cut rates, instead favoring no change in policy. I should add also one of the other voting members voted again, this is Mr. Myron voting again for a, a larger cut of half a percent. He’s been a very recent appointee by President Trump.

And it’s not really surprised to anybody that he’s been a bit more enthusiastic about cutting rates. But the fact that one member voted not to move rates, that was a bit of a surprise. But also in the post-meeting press conference, the Fed chair, Mr. Powell said a couple of things that really gave the market pause for thought, for example, in speaking about a widely expected December cut, he said it’s not seen as a foregone conclusion. In fact, far from it. He went on to say there are strongly different views on the voting committee about a December cut. And that was enough to really turn around market sentiment. This is right at the end of the month, I should add. And from that point onward, we saw yield start to rise in the US as investors reassess their expectations for December cut. And we saw a little bit of weakness inequities as well to end out the last couple of days of the month, also related to this watering down or talking down if you like.

Steve Hiscock:

Rob what is the basis for that? Because he during the month and albeit late the CPI did come out. And that was actually fractionally better than expected.

So why the change?

Rob Hogg:

As you say, it was the CPI was fractionally better than expected. It’s still a little bit too high and it’s only one month of being fractionally better than expected. The past couple of months have been, if anything, fractionally worse than expected, and some of the underlying measures hadn’t really been moving in quite the right direction.

With an economy that still seems to be growing, albeit more slowly, with an unemployment rate that’s still relatively low, but likely to rise, the enthusiasm for rate cuts that we see discounted in the market I think was always something that was at risk of being watered down by some of the policymakers, and that’s what Fed chair Powell did.

Now, this doesn’t mean that they won’t cut rates in December, but I think he was just trying to set the tone that there is some potential uncertainty about it. So between now and the next meeting in December, hopefully the government will get to some resolution and everyone can go back to work in the public sector and we will get more numbers.

And, but I guess one of the risks from that is that we might start to see some very weak employment numbers, but we’ll have to see. We haven’t, as we’ve been saying, seen much in the way of updates, official updates from from government bodies.

Steve Hiscock:

No. And presumably at some stage, there’ll be a whole raft of data that comes out.

Just on the shutdown, how do you see that panning out?

Rob Hogg:

I gotta tell you, I really have absolutely no idea, but all I know is that it’s within two days or one day of being the longest ever. It seems likely, unfortunately, to break that record. But as to when it comes to an end I know not.

Steve Hiscock:

Is there a trigger, a financial trigger, that would bring it forward?

Can they do it indefinitely? They can’t.

Rob Hogg:

No, you wouldn’t think so. No. At some point in time, markets would take fright. But I think this is just endemic of the political situation in the United States, that both sides have really dug in on this both to try and make a point. I suspect the more likely trigger is that the polls really start to move in one direction or the other. And either the Democrats or the Republicans are starting to be seen as the bad guys, if you like in negotiations. That, along with perhaps, I dunno, a negative movement in the bond market, those could be the triggers, but it’s more likely to be the polling I think that draws them together.

Steve Hiscock:

Okay. And staying on the US partly the US, but Trump met with Xi in South Korea. What happened there?

Rob Hogg:

Not a lot. Not a lot that’s clear and not a lot that’s gonna happen anytime soon. They seem agree on some sort of extension of the reciprocal tariff pause. But we didn’t really get an awful lot reported out of that at all. Now, that’s not to say it was a stalemate. I think Trump gave it at 11 or 12 out of 10. Xi was a good deal, more circumspect about his scorecard. But look, it’s endemic of what we’ve come to learn of Trump and his TACO description, “Trump Always Chickens Out”, that he comes out all guns blazing and then gradually walks back what he’s talking about and the actions that the US are taking. And the market just sailed straight through this. It’s getting quite used to this type of volatility. Certainly more used to it now than they were in April anyway. So it seemed to end without anything terribly clear coming out of it.

Steve Hiscock:

One of the things that lots of people have been focusing on a rare earths and gold. Gold’s had an incredible run. But in the month it had quite a lot of volatility.

Are we getting to the end of the gold price run? What are your thoughts on gold? It had one of its worst trading days recently.

Rob Hogg:

Yeah, it had quite a sizable correction around mid month down almost 7% on October 21, worst trading day since 2011. It did however close the month higher by around 4% or thereabouts. I wonder whether the volatility we saw in gold and some other markets over the month is more symptomatic of the very, very significant run that at some point in time had to pause for breath. But also there is some signs that liquidity in US money markets are starting to drain away.

And that could be causing some of the volatility that we saw during the course of the month. As to where gold goes from here, look, there’s still the features and the factors that have been pointed at in terms of driving the gold price rally, they are still very much in existence.

So things like sustainability of US and global fiscal deficits, things like this, debasement trade whereby global investors are seeking safe havens apart from the US dollar and gold has shown up. These still seem to be the same factors, but as to whether it’s been overbought, that’s a very difficult call to make, I think.

But the volatility might be telling us something about factors that are outside the gold price per se, and more about market dynamics and liquidity.

Steve Hiscock:

And one of the things we’re looking at is signs of stress, and interestingly, in the credit market there were a couple of bankruptcies in the US over the month. For those that have memories that include the global financial crisis in 2007, eight, nine, is this the canary in the coal mine this sort of thing? Or is it going to be contained?

Rob Hogg:

Not so much the canary in the coal mine, more so the cockroach in the cupboard. We had JP Morgan, CEO, Jamie Diamond remark that, and I quote here, when you see one cockroach, there are probably more. Everyone should be forewarned on this.

So look, as you say, there were a couple of bankruptcies, auto sector related. Tricolor, a subprime auto dealer and first brands and auto parts supplier. So had a bankrupt of those two companies and that has brought about concerns about the quality of credit origination in some corners of the financial industry.

And we did see commensurate with these bankruptcies, a bit of a sell off in credit markets and an increase in credit default swap pricing. So there they’re a measure of the costs of insuring corporate credit securities. But look, by the end of the month again we saw the credit markets ended broadly unchanged.

Fractionally, fractionally weaker. These could be signs, these could be canaries, these could be cockroaches. I think it’s alerting us to this whole private credit phenomena, which has grown enormously quickly, here in Australia, but in the US absolutely as well for a number of very solid reasons.

But in, in some cases, perhaps it’s just gone a little bit too far. Perhaps some of the more recent players in the market and more recent investors in the market and not as informed or has experienced as some of the early movers, and perhaps you’re starting to see some fraying around the quality of some of the loans that have been written in this private credit sector and that that is a bit concerning ’cause this is quite opaque. And there are a lot of unknowns in the whole credit space at the moment.

Steve Hiscock:

Yeah. And I guess as a an overall view. It’s an asset class that a lot of people don’t know a lot about, including, unfortunately some of the people in the sector. And what worries me is just how much money’s chasing a relatively small asset class at the moment.

And in Australia, with the phasing out of hybrids, there’s going to be more demand for this sort of thing. And I just worry about the quality of some of this. Do you think this is an issue? We haven’t really seen it in Australia before this sort of market have we?

Rob Hogg:

No, we haven’t. It’s come about in Australia.

Initially the attractiveness of private credit was really turbocharged when we had yields in say, government bonds, for example, that were less than 1%. So there was around the time of COVID and investors were looking for a good deal more yield than 1% at the long end of the yield curve.

So quite sensible, initially anyway, looking for this pickup in yield. And we’ve also seen banks for Basel and other related regulatory reasons moving away from this type of lending because of the amount of capital that they need to set aside for these types of loans. Sort of set up the perfect sort of environment for private credit to really thrive.

I think the risk here is that some of the credit portfolio managers that have been around for a long time have been through cycles. They’ve been through workouts. They know what to do when things start to get a bit tough and when credit quality starts to deteriorate. But a lot of the newer comers, and there’s been a lot of newcomers into the sector, managers, but also investors, they haven’t necessarily seen a cycle they haven’t necessarily worked on a workout. And the risk is that we could start to see some of those loans start to go quite poorly, and that can then have implications for the sector overall, that investors start turning away and perhaps even wanting their money back. And that’s the tricky part because we’re talking here about unlisted illiquid holdings across these portfolios. So that could be a bit tricky if and when that happens.

Steve Hiscock:

Yep. And I know the team are on the lookout for that sort of thing. But yet the market still keeps going up and the equity market I’m talking about here. And today we are gonna be talking about whether we’re in a bubble, but did you want to talk about just how much money is coming into the US market from offshore? Is that a worry?

Rob Hogg:

It’s been an interesting sort of 12 months for the US. If we cast our minds back a little more than a year ago, in fact, say 13 months ago. ’cause it’s pretty much the anniversary now of the US election. I can remember from the start of October last year when the expectations about Trump being the likely winner of the presidential election, we started to see the US dollar rally. We started to see US equity markets rally. We started to see European equity markets weaken and the euro itself weaken all in expectation of Trump. Now this is more about the expectation about tax cuts and deregulation.

Anyway, all of that lasted through until January, February of this year, 2025. But then things started turning back in the other direction, and investors moved back into European equity markets, back into the Euro and so on. And the whole tariff eruptions we saw back in April only furthered that. But it’s just in the last month or so that we’ve seen the market sentiment move yet again.

We’ve seen inflows into the US market pickup. We’ve seen the US dollar pick up, having depreciated all the way through to the end of September, I think. The last couple of weeks, and certainly the month of October, saw a rally in the US dollar and a rally in US equity market. So this is really all about AI and the AI fervor that investors can find for sure the biggest and the richest opportunities in the US if they’re looking to follow and invest in this AI thematic. So we’ve seen a turning around.

Now Citi a global broker and bank have done some recent analysis that by way of talking to a lot of investors, including Australian investors and the sentiment they’ve come up with is Reluctant Bulls. And what they mean by that is that this money’s moving back into the US particularly into AI and other tech related sectors. And this is in spite of the fact that investors will freely talk about about the risks, about potential bubbles and so on. And yet they’re continuing to invest as Citi say, reluctant bulls. And they see now that euphoria about the US market is now near its highest level since we’ve seen significant downward adjustments in the overall market. So back around COVID time and before that, the very early 2000’s. So that’s certainly what they’re seeing, these Reluctant Bulls, in spite of all of the bubble fears and concerns, are continuing to buy the market.

Steve Hiscock:

Before we get on to the chat about bubbles, let’s talk about Australia just quickly. So the Reserve Bank met yesterday on Cup Day and decided as was widely expected not to cut rates. I guess the fear now is potentially that we are at the end of an interest rate cycle or cutting cycle here. Can you talk about that?

There was disappointing inflation figures, which I might get you to talk about and also talk about the employment data that was out as well.

Rob Hogg:

Alright, let’s just talk about market pricing. So as of today, so after the RBA meeting, if we look out through pretty much all of next year, there is now not a full rate cut price.

And by that I mean there’s up to 20 basis points of a 25 basis point rate cut price, but there is not more than 25 basis points. So the market has now moved to on balance, an expectation that a further rate cut is now becoming less and less likely. It’s still almost priced in, but it’s not entirely priced in.

Now, why is this? CPI is the key reason. We had two key indicators out during October, employment was out. The unemployment rate was up a little bit that caused market yields to fall, to rally as expectations about rate cuts started to go up. So more expectation of rate cuts that was then turned around on its head with the consumer price index for the September quarter.

And what was most alarming about that is not so much the actual increase in the CPI, which is 1.3% for the quarter and 3.2% for the year. It was more so the breadth of price increases. And what I mean by that is the RBA has a couple of measures. They look at the trimmed mean, that takes off either end of the the price increase spectrum. So they take away the largest increases, the largest falls, and looks at a more central number that rose up by 1% for the quarter and 3% over the year. That was significantly more than the RBA expected and more than the market expected. But if we cut and dice the CPI almost any other way, looking at discretionary and non-discretionary goods and services, tradables and non tradables services and goods, in all of those ways of cutting up the CPI to get other underlying measures, every single one of those surprised on the upside for the quarter and they all surprised on the upside for the year and that really shocked the market on the day of its release towards the end of the end of the month.

And that has really changed the RBAs language and their outlook and their signaling, and exactly as you said the RBA themselves are now suggesting that there’s really no prospect of rate cuts anytime soon. Could it be the end of the rate cut cycle? That is absolutely possible. That will be driven by developments in inflation.

But also developments in employment. And really for the RBA to go back to cutting rates, we need to see inflation ease. And unfortunately, we need to see the unemployment rate rise or certainly signs that capacity free capacity in the economy is increasing one way or another. But as of today, the probability of another rate cut seems to have pretty much evaporated on the back of the consumer price index in particular.

But look, this is not all bad news. One of the reasons why the RBA may not cut rates is because the economy is actually picking up a little bit of momentum. Not a lot, but it is going, it seems in a slightly different direction to the US where they’re still talking about potential rate cuts.

So here, activities picking up a little bit, so the economy is benefiting from the three rate cuts we’ve had this year. And if that continues, of course there’s less need for a further rate cut in any case. But it’ll be CPI and it’ll be employment. They will really drive what the RBA does from here.

Steve Hiscock:

Which leads us to obviously what happens in the markets going forward.

And so as you say that maybe there’s gonna be a slight divergence between the Australia and the US, but generally there’s continued talk of bubbles particularly centered around the US tech side. However, we don’t really think we’re in a bubble yet. There are some signs, there’s some characteristics but we don’t think there’s enough characteristics. And valuation is one of those that indicate we are in a bubble at this stage.

Rob Hogg:

Valuations really towards the very, very top end of their sort of historic range. And that’s probably the most negative element of the current setup, if I could put it that way.

One, one of the positive things is the fact that people are actually talking about bubbles. We would truly be in the, in a bubble if nobody thought we were in a bubble, if that makes any sense. But there’s definitely more and more talk about bubbles. There are definitely sectors of the market.

That have got bubble like characteristics to them around the fringes of of us markets in some sectors and some sort of trading strategies. But we also know that that the companies that are driving that are enjoying most of the price increase. In fact recording incredible earnings growth and continue to point to quite positive earnings outlooks with some slowing and the rate of increase of earnings.

But that’s only to be expected. Broadly speaking this whole AI thing does have the potential to, and is already doing so, change the way we all live and the way we work. It has potential to drive enormous productivity benefits. I think the key risk and the key bubble thing we should be wary about is and has been increasingly spoken about whether there is a return on equity for all of the investment that comes with AI, ’cause that’s ultimately what we saw. The NASDAQ bubble that the huge plunge in investment back in those days on TMT Telco’s, media, telecom.

Steve Hiscock:

At the turn of the century.

Rob Hogg:

At the turn of the century, yeah. In 1999, going into 2000, it eventually got to the point where that led to over investment and that then led to a recession in the US in very early 2000, which was a very strange recession. It was a CapEx recession. And that, I think is the risk here that we end up with over investment in investment is now driving the US economy overwhelmingly. And that’s unusual. So the, but these are all interrelated as we say.

Steve Hiscock:

I, I think and the way we are looking at it, Rob, we are cautious. But we are not significantly underweight at this stage. And I think that’s the critical thing. It’s not like we think there’s going to be a drawdown of genuinely historic proportions. There will be pullbacks, they’re healthy.

We would welcome a pullback of a few percent, 5% or whatever. But at this stage, we don’t think we’re seeing enough. Of the characteristics of traditional bubbles that would see a global meltdown? Is that a fair story?

Rob Hogg:

No I think that’s fair. We’ve been cautious for a while. In our portfolios, we, that caution is reflected in the stock holdings.

We’re not significantly underweight, as you say. And look, we’re very aware and very alert. And as I said, I think that’s one of the most comforting factors at this current time that there are more and more people talking about bubbles. And as I say, the nature of the way markets work is that if there’s more and more people talking about it the probability of there actually being a bubble is fractionally less.

But look, don’t get us wrong, we are wary. Valuations are high. There are a number of stocks that have moved clearly away from their underlying fundamentals. Their, the nature of their price performance has bearing less and less resemblance to their underlying earnings. So that is definitely a risk. But as with these situations, this is also likely to throw up potential opportunities. And that’s what we are very much focused on.

Steve Hiscock:

And very much there’s obviously in the last few months there’s been a real resurgence in performance from small companies and our funds are well situated to take advantage of that. But it’s not just the small companies that have lagged.

And there are some really good quality high large market cap stocks that have underperformed this run they’re not part of the tech bubble. And some of them are trading at historic discounts to the market. And so there are opportunities even in the large caps, aren’t there?

Rob Hogg:

Yeah, there are, it’s starting to have a bit of an echo of the old economy, new economy debate that we had. Yeah. Yeah. In the late 1990s where Australia was regarded as old economy not having, as we were saying, any of the TMT or very little of the TMT exposure. It’s starting to have some of those echoes if you like. Look, but I think, and we’ve highlighted this for several months now, there is a bit of a nirvana priced in which we’re weary of. We see that in valuations, as we’ve said. It’s this whole continued earnings growth and continued rate cuts, anything that upsets that. And we focused a lot on the rate cut side that we thought for a little while that, the extent of rate cuts priced in was probably overly optimistic, which is to say too many rate cuts priced in.

And that, as I think we’ve seen in Australia in the last couple of months, as those rate cut expectations have been unwound to basically no more rate cuts, we’ve seen the equity market here underperform. So that’s what you’d expect to see, and that’s probably the risk in the US if for whatever reason the rate cut profile in the US, which is January next year, and June next year, if that all unravels perhaps because of ongoing inflation pressures that, that is that is the clearest risk I think, to the market that could bring about some reevaluation of of macroeconomic prospects and earnings prospects.

Steve Hiscock:

So as always, we’ll keep one eye on the inflation figure and one eye on the employment data, and that’s when we get employment data from the US.

Rob Hogg:

Yes.

Rob, thank you. Thank you so much for your time again. That brings us to the end of today’s podcast where we looked at what happened in October and going forward too.

I think the key message this time is that while there are some bubble characteristics, we do not believe we’re in a bubble at the moment, but we do acknowledge that valuations are at definitely towards the upper end of historic highs.

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Disclaimer:

This podcast is produced by SG Hiscock and Company. It does not constitute financial advice and assumes a certain level of knowledge. It’s general information only and does not take into account the investment objectives, financial situation, or needs of any person and should not be considered a recommendation. For more information, visit: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.