The State of Markets: "How Much More Upside?"

The State of Markets:  “How Much More Upside?” 

US macro data was relatively disappointing this week. The ADP report, for example, showed a monthly contraction in private sector jobs for September (the third in the last four months), while today’s ISM Services print was weaker than expected. Elsewhere, yesterday’s weekly jobless claims and today’s nonfarm payrolls were not published due to the government shutdown. US Treasury yields are lower across the curve this week.

Equity markets have, once again, looked through the softness. Within the S&P500, leadership has come from the MAG7 (with new record highs in Nvidia, Apple, and Microsoft), alongside strength in key semiconductor names. Micron, for example, is up 21% week-to-date. With that, ‘long duration growth’ has made new highs while the other two sector categories (cyclicals and defensives), in contrast, are broadly flat in recent weeks (see chart below).

The key question, therefore, is: How much more upside is there? Is near term exuberance about to peak? Or is a pullback coming? We addressed those questions, amongst others, in this week’s ‘Tactical Equity Asset Allocation’ update, available to subscribers (link below).

Next week’s US macro data is light and may be delayed due to the shutdown – but includes consumer credit (Monday) and Michigan Consumer Sentiment (the flash estimate for October, due on Friday). Various Fed governors are due to give speeches (including Powell on Thursday) and the Fed minutes from the September meeting are due on Wednesday (7pm London time). In Europe it’s retail sales (Monday), German new orders (Tuesday), and German industrial production (Wednesday). In the UK there’s a speech by the Bank of England’s Bailey at Scotland’s global investment summit (Monday), and a speech by Pill in Birmingham (Wednesday). Please see below for a full list of next week’s key macro data and events.

Key Chart: S&P500 index – divided into cyclicals, defensives and long duration growth (YTD performance, %)

Upcoming Important Data/Events This Week:

Key Research

Tactical Equity Asset Allocation No. 261, 1^st October 2025: 

“Speculative Excess, Froth and Euphoria A.k.a. Tactically Cautious US Equities’”

 Valuation is not a good tool for timing markets (on a 1 – 4 month basis). There’s no correlation, for example, between the S&P500’s PE ratio (or ERP) and the market’s next 12 months performance. Cheap markets can get cheaper; expensive markets, similarly, can become more expensive.

Having said that, the US equity market is clearly richly valued, as we laid out in our latest quarterly valuation section: It’s “Expensive – At All Levels”. Not only is the stand alone PE ratio of the S&P500 close to record highs, but the market is also expensive relative to risk free assets; relative to other asset classes; and at a median sector and median single stock level. Over and above that, it’s not just a handful of MAG7 stocks that are reasonably expensive, 22.7% of the S&P500 trades with a forward PE ratio of 30x or higher (a level rarely surpassed). Undoubtedly the market is expensive (for a detailed analysis of this, see our latest webinar on ‘Valuations’; & our latest ‘Quarterly Valuation’ Asset Allocation update).

Key North American Macro Data & Events:

Fig B:  US Michigan Consumer Sentiment, shown with recession bands 

Key European Macro Data & Events

Fig C:  German industrial production (Y-o-Y %), shown with recession bands 

Key UK Macro Data & Events

Fig D:  RICS housing survey (adv. 6m) vs Rightmove house price index (Y-o-Y %) 

Key Asia-Pacific Macro Data & Events

Fig E:  Japanese ESRI leading index shown with recession bands 

This Week:

Longview on Friday, 3^rd October 2025:

“Japan: Optics vs. Reality – Part II” 

Longview on Thursday, 2^nd October 2025:

“Japan: Optics vs. Reality – Part I” 

Tactical Equity Asset Allocation No. 261, 1^st October 2025:

“Speculative Excess, Froth and Euphoria A.k.a. Tactically Cautious US Equities”

Monthly Global Asset Allocation No. 71, 29^th September 2025:

“OIL: Supply Surpluses Ongoing A.k.a. SELL Upside Breakouts”

Daily Dose of Macro & Markets:

Daily Dose of Macro & Markets 2^nd October 2025:

“Spain’s Re-Rating Moment -> Outgrowing The US”

Daily Dose of Macro & Markets 1^st October 2025:

“Tariffs –> Still A Key Risk”

Daily Dose of Macro & Markets 30^th September 2025:

“UK Economy –> Delicately Poised But…”

Weekly Risk Appetite Gauge:

'Weekly Risk Appetite Gauge', 29^th September 2025:

“Toppy Tech!” 

Last Week:

Longview on Friday, 26^th September 2025:

“AI Bubble? US Housing; & Three Potential Market Scenarios For The Next Three Years”

Recommended Global Macro Trade, 25^th September 2025

“Gold: Toppy Again? Or ‘To the Moon?’”

Quarterly Global Asset Allocation Update No. 63, 23^rd September 2025

“The Great ‘Catch-Up’ A.k.a. From AI Mania to Broader Market Leadership” 

Daily Dose of Macro & Markets:

Daily Dose of Macro & Markets 25^th September 2025:

“Blink & You Missed It"

Daily Dose of Macro & Markets 24^th September 2025:

“Chinese Energy Dominance and the ‘Green Energy Scam’”

Daily Dose of Macro & Markets 23^rd September 2025:

“US Housing -> A Key Risk Factor"

Weekly Risk Appetite Gauge:

'Weekly Risk Appetite Gauge', 22^nd September 2025:

“Global Equities: Frothy, Overbought & Overextended”