We share our latest observations on global asset markets in relation to T8 Energy Vision

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• Momentum in equity markets remained strong during October.
• T8 Energy Vision generated a positive return for the month, materially outperforming global equities with comparable annualised volatility (a common measure of risk), continuing its year-to-date trend. Please refer to the monthly report for detail specific to the performance of the fund.
• We maintain our positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging.
• Rising electricity demand represents a compelling opportunity for investors. Being led by the boom in data centres (a secular electricity demand growth trend) and the electrification of road transport (a structural electricity demand shift), the winners will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).

Market update

Equity markets remained strong during October, driven by better-than-expected US corporate earnings and a perception that inflation is moderating which will allow further interest rates cuts.

A flare up in US-China trade tensions during the month saw equities indices ease momentarily before rallying to new all-time highs. Notable once again was the strong performance from stocks and indices with high short-interest, especially unprofitable early-stage technology stocks. We observe that risk appetite remains high notwithstanding an ongoing US government shutdown (government shutdowns have previously been a catalyst for short-term risk aversion and elevated volatility) and each dip in the market is being bought. While excitement about the potential for value creation from artificial intelligence (AI) remains very high, we are seeing pockets of scepticism beginning to build (stemming from the apparent circularity of capital investment into AI technology and a lack of cashflow positive business models at this stage of the industry’s evolution).

In terms of fundamentals, as of the end of October, roughly two-thirds of S&P 500 companies had reported quarterly earnings with a majority exceeding analysts’ expectations. While a US interest rate cut at the end of the month was no doubt positive, it had been well-discounted by markets so more impactful were comments from the Federal Reserve Chair Jerome Powell following the decision that “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”, which materially dampened expectations for more interest rate cuts in the short term.

Looking ahead, we remain of the view that markets are overlooking a number of serious risks, including:

• elevated US debt levels;
• the unsustainably high US budget deficit;
• the likelihood that government policy exacerbates these issues (e.g. the One Big Beautiful Bill Act);
• the US Federal Reserve losing its independence;
• the US Government shutdown (which is preventing vital economic data from being published); and
• uncertainty in relation to the impacts that tariffs will have on the US and global economies (especially on inflation, employment and economic activity).

We believe that these factors create a higher risk of economic slowdown or economic stagflation (and therefore a higher risk of a short-term market correction). This, combined with US equities indices at all-time-highs should be motivating equity investors to be especially mindful of the risk profile of their portfolios.

For this reason, we favour defensive sectors such as electric utilities to which T8 Energy Vision has significant exposure. We observe that the utilities sector is benefitting from growing electricity demand in developed markets for the first time in a decade (driven by the data centre boom), which is a genuinely attractive attribute in addition to its well-known defensive characteristics.

Macroeconomic data

A US Government shutdown started on 1 October (at the time of writing has been the longest so far in history) and as a consequence, the Bureau of Economic Analysis and Bureau of Labor Statistics have not been releasing the monthly economic data for which they are renowned. The data includes the Core Personal Consumption Expenditures Price Index and the Non-farm Payrolls Report, which are the Federal Open Market Committee (FOMC)’s preferred measures of inflation and unemployment, respectively. The absence of this data creates a significant obstruction to gaining a clear picture of the state of the US economy and therefore the outlook for monetary policy.

Interest rate expectations

Expectations for an interest rate cut at the FOMC’s December meeting pulled back substantially from almost fully priced-in to a roughly 70% chance following the comments from the chair of the US Federal Reserve at the October meeting that “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”. At this stage, the market is pricing in one cut in January 2026 and a second in June.

Inflation data

In the absence of Core PCE, the Consumer Price Index (CPI) has become the favoured measure of US inflation. At 3.0%, Core CPI came in slightly cooler than expectations for 3.1% and the prior reading of 3.1%. While this was below market expectations, we’re troubled by the fact that it remains stubbornly elevated which is concerning as we await the true inflationary impacts from US-induced trade war. The general assumption is that tariffs will be inflationary but that it is still too early to be observing much of an impact. The magnitude to which tariffs increase inflation and therefore interest rates is a critical issue to monitor over the next 6-12 months – we see the potential for the impact to be material.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) was little changed on the prior month and remains weak at 94.6 (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

The response of US consumers to the tariff shocks will be a key determining factor for the trajectory of the US economy. In the short term we are cautious on the basis that consumer confidence is believed to be driven by a combination of job security, wages, inflation and interest rates – while interest rate cuts may provide some relief, the other factors do not appear to be headed in the right direction in the short term.

Market impacts

Bonds

The bond market experienced headwinds (Global Aggregate Bond Index -0.3%) with the tempering of expectations for an interest cut at the next FOMC meeting in December. The yield curve flattened, as illustrated by the value of 1-3 year US Treasuries (unchanged) relative to 7-10 year US Treasuries (+0.4%) and 20+ year US Treasuries (+1.0%). The yield on 10-year US Treasuries ended the month 7 basis points lower at 4.08%.

Recent concerns in relation to the long end of the curve appears to be continuing to ease with yields on 20-year US Treasuries falling 8 basis points. You will recall that we have been speculating that a yield of 4.5-5% on 20-year US Treasuries may not be sufficient compensation for the risk of lending to a government with a debt level of 150% of gross domestic product and an outlook for material budget deficits for the foreseeable future.

Currencies

While the US dollar (US Dollar Index +2.1% to 100) strengthened, we believe that serious questions remain in relation to the US currency’s role as a global safe haven, driven by investor concerns about US economic policies such as tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics.

Commodities

The strong market for hard commodities continued, led by industrial metals. Aluminium (+7.5%) and copper (+6.3%) were the best performers with copper continuing to benefit from recent supply disruptions at major mines. Within precious metals gold (+3.7%) was once again outperformed by the ‘precious-industrial metals’ such as silver (+4.4%), and palladium (+14.1%). Crude oil (-1.6%) was the main exception driven by a combination of weak demand and rising supply as OPEC production increases were implemented.

Equities

Considerable momentum continued to drive global equities higher (+1.9%) and US indices achieved new all-time highs (S&P 500 Index +2.3%, Nasdaq 100 Index +4.8%). South Korea (KOSPI Index +19.9%) and Japan (NKY Index +16.6%) were the standouts internationally, while Hong Kong (Hang Seng Index -3.5%), and to a lesser extent Germany (DAX Index +0.3%), were the laggards.

At sector level (within the US), the predominant trend continued with the information technology sector (+6.2%) the strongest performer, driven by the mega-cap technology stocks (Magnificent Seven Index +4.9%).

From a factor perspective, growth stocks (+3.6%) outperformed value stocks (+0.3%), while small caps (Russell 2000 Index +1.8%) once again performed more or less in line with large caps (Russell 1000 Index +2.1%).

Future energy stocks

The powerful rally in future energy stocks continued (Clean Energy Index +14.0%). Once again, a key driver appears to have been aggressive short-covering and coincident with this, the Goldman Sachs ‘highest short interest basket’ (+10.5%) generated an equally powerful monthly return.

Outlook

Structural, secular and cyclical tailwinds are converging for energy stocks. Global energy demand growth is accelerating – especially in advanced economies. In 2024, electricity demand grew at roughly double the 10-year average. Electricity is booming, driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift).

We believe that electricity is the key constraint to the growth of artificial intelligence. Electricity is much more scarce than the risk capital required to fund the development of AI models and build the data centres.

The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical raw materials).

The world (and especially developed markets) needs more electricity generation. Our expectation is that this need will be met by a variety of different generation types, namely nuclear, gas and large-scale renewables. The lead time and cost of new nuclear and even gas-fired electricity generation creates a fertile environment for large-scale renewables, notwithstanding the prevailing perception to the contrary (especially Donald Trump’s ‘drill, baby, drill’ comments and open hostility towards renewables). We refer you to a short summary of our expectations for the future energy mix in the US.

Falling US interest rates (150 basis points of cuts so far in this cycle) is an additional tailwind for electric utilities and their supply chains (these industries have historically displayed very high sensitivity to interest rates).

We expect that falling US interest rates will remain a tailwind on the basis that the consensus ‘neutral’ interest rate is between 2.25% and 3.25% indicating that material further easing remains the base case.