Very mixed messages with exceptional valuations, slowing economies and sticky inflation
October 2025 will go down as an extraordinary month for investors. NVIDIA, which has appreciated by over 50 per cent in the first ten months of 2025 and seen its market capitalization exceed US$5 trillion. The aggregate market capitalization of the Magnificent Seven (including Alphabet, Amazon, Apple, Meta, Microsoft and Tesla) hit US$22 trillion, or 37.4 per cent of the S&P 500 and the excitement surrounding artificial intelligence (AI) is palpable.
Meanwhile Central Banks for most western economies, are witnessing slowing economies and many cases, decelerating inflationary expectations. The canary in the coalmine includes New Zealand, Canada and the European Union and we need to keep a close eye on their economic fundamentals.
The Reserve Bank of New Zealand (RBNZ) has cut their cash rate on seven occasions in 14 months from 5.5 per cent to 2.5 per cent. Canada has cut on eight occasions in 16 months from 5.0 per cent to 2.25 per cent and the European Union has also cut on eight occasions over the twelve months to June 2025 from 4.5 per cent to 2.15 per cent.
On average, the RBNZ, the Bank of Canada and the European Central Bank have cut their interest rates since mid-2024 by 2.7 per cent from 5.0 per cent to 2.3 per cent. All are experiencing elevated unemployment rates and slowing inflationary expectations, as their economies slow.
The other three major western economies being the UK, the U.S. and Australia, are suffering from relatively sticky inflationary expectations.
The Bank of England cash rate has been cut on five occasions since December 2024 from 5.5 per cent to 4.0 per cent, but the inflation rate at 3.8 per cent is nearly double the target. This is not a good picture given the 4.8 per cent unemployment rate.
On Wednesday the U.S. Federal Reserve cut its cash rate for the fifth time in 14 months from 5.50 per cent to 4.0 per cent, however Governor Jerome Powell has indicated the U.S. inflation rate will need to come down sustainably from the current 3.0 per cent before another cut is considered.
Meanwhile, Australia’s headline inflation rate now exceeds 3.0 per cent – thanks to the price of electricity – and it is expected the RBA cash rate level will remain at 3.6 per cent until we see a sustainable decline of inflationary expectations, and this appears some months away.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
