Market Musings 121025: Will Friday Trigger A Market Correction?

10:42am by Edmund Shing

12 comments 655 reads

Market Musings 121025: Will Friday trigger a market correction?

Podcast this week:

Our Investment Strategy for October 2025 (click link to listen)

How low can the Fed go? Not just a fundamental question based on a weak labour market, but now also a political one. We now target 3.25% as the cycle low, but political pressure and a weaker economy could take the Fed even lower in time. Favour below-benchmark US sovereign and corporate bond duration.

Why is the ECB stopping at 2%, while inflation has returned to 2%, the euro is strengthening and eurozone growth is modest? Remember that it takes a long time for interest rate cuts to help growth. We raise our 12-month EUR/USD target to USD 1.24, given converging US and EU rates.

Tech is no longer just about the Mag 7: the increasing excitement over homegrown AI models and hardware in China is driving Hang Seng Tech outperformance vs. the US Nasdaq 100 this year. We think this can persist, with foreign investors still largely underweight China. Positive on Chinese stocks, particularly Tech.

We advise commodity exposure in diversified portfolios. Raw materials are a real diversifier, at a time when bonds no longer act as a hedge for stocks. The Equal Weight Commodities Index is +14% this year in USD, led by precious metals and copper. The precious metals bull market has not yet run its course, so we remain positive on gold and silver.

Upgrading equities to Overweight: Global equity markets are showing incredible strength on the back of economic resilience. We upgrade US equities to Neutral over lower interest rates and downgrade European equities to Neutral given potential FX headwinds. Stay positive on Japan, South Korea, China, UK

Friday: Trump threatens China with more tariffs

(from Bloomberg)

China said the US should stop threatening it with higher tariffs and urged more negotiations on outstanding issues to agree on a trade deal, responding to President Donald Trump’s latest measures against Beijing.

China’s recent trade countermeasures on US-related issues were necessary, defensive actions, the Ministry of Commerce said in a statement on Sunday. Beijing will take corresponding measures to safeguard its rights if the US persists in its actions, it said.

Trump on Friday announced an additional 100% tariff on China as well as export controls on “any and…

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Threepeat

11:41am

Thanks Edmund, very interesting.

The Phoenix

12:42pm

Awesome stuff as always Edmund, would there be any chance at some point if you could do an update on the ETF portfolio you covered a year or so back, from memory split gold, world equities, bonds and cash equal weight.

Would be interested to here if you would retain the old weightings or if you would be rebalancing.

Epitychia

2:04pm

We live in interesting times. Trump will not stop until he triggers a market crash. But once out of the bottle, you can't put that genie back in. Gold's rise indicates that the smart money is exiting equities and bonds.

Skepsis

2:42pm

Interesting - thanks. China is very strong on resource collaboration and ownership of assets in Southern Africa e.g. DRC, Zambia, Zimbabwe etc. I expect, as has already been seen, and continues to happen in Zambia, additional collaboration efforts with USA, UK, UAE, India etc. within that region. There is already movement and investment in that direction on several fronts. Mining JVs, Infrastructure Support, etc. An uptick in activity is very likely.

Pat W

4:04pm

Thanks! I always enjoy your Macro insights.

Is last Friday an indication of what will happen in the near future? My portfolio took a battering - 1.6% in one day but, it's really interesting to look at how the individual sectors performed. If these drops continued over the next few days or even weeks this would constitute a major correction. Should we be diverting more of our funds into consumer defensives, healthcare, utilities and financials as well as gold and silver?

1) Geographic ETF's and Trusts: mostly UK, Japan, Emerging Asia, Germany, Europe , China Tech. - 1.7%

2) Defence: Global, European ETF's and Individual shares mostly UK. - 2.1%

3)Metals: including gold and silver. -1.6 %

4) Income and Bonds: including good dividend shares and wealth preservation trusts. -1.0%

5) Infrastructure and Utilities: -04%

6) Technology: - 3.8%

7) Consumer Defensive: - 0.4%

8) USA: -4.5%

9) Industrials: - 1.8%

10) Financials UK and Europe: - 0.5%

11) UK Oil & Gas: -4.3%

12) Healthcare: - 0.98%

13) Global & European Property : -0.73%

14) Consumer Cyclicals: -1.5%

Let's hope it's all TACO!

JohnDoe2378

5:20pm

Playing the market for his longs and shorts

Edmund Shing

6:46pm

Sure I will give an update as to the performance of the Permanent Portfolio over the last 1 year.

7:06pm

So the results of the GBP permanent portfolio over 1 year to October 10 is

+18.2%. 12% of this was contributed by gold (+49% in GBP over 1 year), then nearly 4% from global stocks and just over 1% each from cash and global bonds (currency hedged).

And yes after 1 year I would rebalance, otherwise gold would be far too large a share of the portfolio today given the scale of the outperformance…

Edmund

7:09pm

Presumably your measuring the global stocks element in dollars Edmund given I think your memory MSCI World in GBP is up 14-16% ytd ?

Harry Hindsight

8:02pm

CHINA. Or as POTUS say "Chinnaa".

They are not the future of financial stability.

Gold is (and better Silver) is. And a nuclear race to see who owns the most - put the wad on the table.

Did Musk see Fort Knox before the fall out?

But to see values climb from 1700 - 4000 in a short time is vey vey scary.

8:03pm

Does this add education.

alexdonnelly

8:19pm

Hi Edmond, thanks for your article. You mention US electrical infrastructure. Could you name a few companies to research or are there any funds for this area. Any companies you mention I realize is not advise to go and buy. thanks

Market Musings 121025: Will Friday trigger a market correction?