Otso Monthly - October 2025

How did we perform?

October was a good month, albeit with volatility. The month started very strong, although returns moderately tapered towards the end of the month. In AUD terms, net of fees, we delivered a return of 4.75% (vs benchmark of 3.18%); in USD terms, we delivered 3.94% (vs benchmark of 2.38%).

What happened?

Major gains in stocks: The month was volatile. However, it still ended on a positive note. The S&P 500 advanced roughly 2-3%. The Nasdaq Composite outperformed on the back of large-cap tech results, advancing around 4.8%. Gains were concentrated in the “Magnificent Seven,” where upbeat cloud and advertising trends, plus continued AI-capex momentum, helped offset mixed prints elsewhere. Amazon jumped after Q3 results on a re-acceleration in AWS growth; Alphabet posted double-digit revenue and EPS growth; Apple delivered modest beats; while Microsoft, Meta, and Tesla were more mixed versus elevated expectations. Concentration risk remains notable, with these mega caps now comprising an outsized slice of the S&P 500.

Rates: The Federal Reserve cut rates by 25bps. This was in line with expectations. On October 29, the FOMC lowered the policy rate 25 bp to 3.75%–4.00% and signaled balance-sheet runoff would conclude December 1. The Federal Reserve, and Jerome Powell, noted moderately expanding activity, slower job gains, and inflation that “moved up since earlier in the year.” However, the FOMC’s vote was divided: there was one dissent for a larger cut and one dissent for no cut. However, it was not all ‘good news’ for stocks: Chair Powell indicated that a December rate cut is not a “foregone conclusion”, suggesting that rate cuts might be less significant that had been priced. This cooled the foregoing market upswing.

Inflation: September CPI (released Oct 24) stayed at ~3% y/y; near-term nowcasts point to moderation. With the October CPI report due in mid-November, the data investors had in hand was September CPI, which rose 0.3% m/m and 3.0% y/y; core CPI was roughly 3.0% y/y as disinflation in shelter and goods met firmer energy prices. The print, released Oct 24, reinforced a “cool but sticky” inflation narrative. High-frequency nowcasts into October suggested headline inflation may have eased on a monthly basis, but core remained closer to a quarter-percent pace, consistent with the Fed’s cautious tone.

Growth & activity: manufacturing slipped back into contraction. Softness in the industrial economy re-emerged. The ISM Manufacturing PMI fell to 48.7 in October (from 49.1), with new orders and production indices signaling renewed contraction. Executives cited weak demand and tariff-related cost pressures as ongoing headwinds. The report tempered the “soft-landing” narrative and helped anchor rate-cut hopes even as the Fed avoided pre-committing to further easing.

Government shutdown: The government shutdown persisted throughout the end of October into November. The market appeared sanguine about the shutdown. This is largely because government shutdowns have become routine, and the market expects a relatively orderly resolution.

Going forward

Going forward, we anticipate a muted November. As at the time of writing, the US and China reached a trade detente. However, this had a modest impact on stock prices. We also look forward to additional data, some of which will be relatively stale owing to the government shutdown. This will give more texture to interest rate forecasts.

We note that some investors appear to have become ‘bearish’. This includes Michael Burry, who appears to have purchased puts over Nvidia and Palantir, according to his latest 13F filings. However, the 13F filings do not record ‘short’ positions. Thus, it is also possible that he entered into a put credit spread. And, Michael Burry has historically been “early” with his market-crash predictions.

We remain constructive on US markets. As indicated in prior reports, we see little reason for the US to lose market share to other developed markets, including the UK and EU. Furthermore, we do not anticipate a significant downturn. This is consistent with analyst consensus forecasts.