What to watch in the week ahead (27 October 2025)

• The tech-heavy Nasdaq index is now up more than 20% so far this year, building on gains of 29% and 24%, respectively, in 2024 and 2023. The extent of the rally has generated concerns that US tech has become overvalued. So investors will be looking this week to third-quarter results from America's top tech firms—including Alphabet, Microsoft, Meta, and Apple—to justify historically rich multiples.
• There is virtual unanimity in markets that the Fed will cut rates at this week's policy meeting. But what will the central bank signal about the trajectory of easing after that?
• Gold suffered a setback last week, interrupting a rally that had taken the precious metal's gains over 65% so far in 2025. Our view is that last week's decline will prove a pause that resumes later, as demand for gold remains strong. But further volatility remains possible if geopolitical risks ease, a potential near-term headwind for gold. This week's main diplomatic focus will be on talks between the US and Chinese presidents, with recent headlines pointing to an improvement in relations.

Can US tech sustain the rally?

The tech-heavy Nasdaq rose 2.3% last week, bringing its year-to-date gains to over 20%. This performance comes amid growing concerns over valuations for US tech. The Nasdaq now trades at around 29 times 12- month forward earnings, roughly a third more expensive than the median over the past 30 years. Whether the index can maintain—or build on— these gains will depend in part on the upcoming third-quarter results from the major tech companies, including Alphabet, Apple, Amazon, Meta, Microsoft, and NVIDIA, with the latter reporting later in the earnings season.

Investors will be looking for reassurance that the pace of capital spending on AI is being maintained—or even stepped up—and that progress is being made in monetizing past spending. Our view is that current tech valuations—although elevated by historical standards—are justified, given the transformational nature of AI and the rapid profit growth of AI leaders. AI investment in the US over the last 12 months remains below 1% of GDP, compared to levels of 2-5% for other capital spending surges—such as the railroads in the 1860s, the electrification of the 1920s, or the 1990s telecom boom, based on research by Goldman Sachs.

Finally, the price-to-earnings (P/E) ratios for today’s tech giants are far lower than for the tech firms at the peak of the dotcom bubble, at around 30 times forward earnings at present compared to over 80 times for dotcom era market leaders—Microsoft, Cisco, Lucent, Nortel, and AOL—in 1999. So, we remain confident in the outlook for the tech sector and for AI as a transformational innovation opportunity.

Will the Fed satisfy the market’s desire for rate cuts?

The Fed has been starved of much of the data that it usually relies on for rate decisions, as the US government shutdown has interrupted the collection of statistics. However, the consumer price index for September was released, albeit with a delay. A tame release came as a relief for markets and presents no barrier for a rate cut this week, which is overwhelmingly expected by investors.

Core consumer prices—excluding volatile food and energy prices—rose by less than expected both on a monthly and annual basis at 0.2% and 3%, respectively, for September. Reassuringly, there was further evidence that higher US tariffs have not yet been feeding through into sharply higher costs for consumers. Apparel was one exception, with an acceleration to 0.7% on the month from 0.5%. However, the price of new vehicles rose just 0.2% on the month. In addition, consumer goods giant Proctor & Gamble halved its estimate of the annual cost of tariffs to its business to USD 400 million—largely reflecting the lack of retaliation from US trading partners such as Canada.

The latest news removes the final impediment to an easing at the conclusion of the Fed’s policy meeting on 29 October. In our view, the Fed will want to avoid alarming the market by deviating from expectations for a 25-basis point cut. We remain confident that evidence will continue to filter through that the labor market is weakening, providing justification for a rate cut at the December policy meeting too, even though inflation is running about a percentage point above the Fed’s 2% target. That will further erode the incentive to sit on excessive cash reserves. It also adds to the positive backdrop for equities. Stocks stand to benefit from the benign bond market backdrop, with yields on the 10-year US Treasury back to around 4%, down by close to 30 basis points from a recent peak in August.

Was gold’s slide a healthy correction or the end of the rally?

Gold’s rally had started to look unstoppable, with a relentless climb taking its gains for the year over 65%. Then on Tuesday, the precious metal dropped 6%, its steepest single day decline in more than 12 years. This week investors will be asking whether this marks the conclusion of gold’s remarkable run, or whether it will turn out to be a pause that refreshes. Gold traditionally benefits from elevated geopolitical risks, so investors will be eagerly awaiting the outcome of talks this week between the presidents of the US and China. Recent headlines suggest this could lead to an easing of tensions.

But despite potential near-term headwinds, all the forces that have supported gold's rally remain in place, in our view. First, this week’s expected rate cut from the Fed will further lower the opportunity cost of holding gold. Given sticky inflation, the real US interest rate could fall below zero. Second, this should further encourage investment flows into gold exchange traded funds, which hit a record USD 17 billion last month. Third, central banks remain enthusiastic buyers as many seek to diversify away from US dollars. Finally, concern among investors remains elevated over rising government debt in much of the world. Geopolitical concerns also continue to ebb and flow—with the US government shutdown heading for a fourth week.

So, we continue to view gold as an effective portfolio diversifier, with further gains toward our upside case of USD 4,700/oz still possible should adverse macro and political developments emerge. At the time of writing, gold is trading around USD 4,065/oz. For investors with an affinity for gold, we recommend using setbacks to add holdings if they are below our optimal mid-single-digit allocation in a diversified portfolio.

Chart of the week

Our view is that current tech valuations, though elevated by historical standards, are justified given the transformational nature of AI and the rapid profit growth of AI leaders. AI investment in the US over the past 12 months remains below 1% of GDP, compared to levels of 2-5% for other capital spending surges—such as the railroads in the 1860s, the electrification of the 1920s, or the 1990s telecom boom, based on research by Goldman Sachs.

US tech has represented a significant portion of benchmark returns in recent decades; we remain confident in the outlook for AI as a Transformational Innovation Opportunity and in the outlook for the tech sector.

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