Market Pulse

Global equities are under pressure as the S&P 500 extends its slide and the FTSE 100 posted its largest one-day drop since April after a roughly 1.3% fall. Investor attention is shifting from exuberant growth to valuation fatigue, especially in large-cap technology. 

In fixed income, U.S. Treasury yields rose again: the 10-year climbed to ~4.14% and the 2-year to ~3.61% as hopes for imminent rate cuts by the Federal Reserve faded. The rise in yields is draining some liquidity from risk assets and renewing investor focus on duration risk.

In currencies, the dollar strengthened against the euro and yen as U.S. rate expectations held firm. Commodities remain mixed: while gold continues to benefit from declining real yields and currency weakness, industrial metals are under pressure amid easing global demand expectations.

Key macro drivers: inflation remains sticky in services sectors, labour markets are showing signs of softness but not collapse, and geopolitics, especially U.S. & China tech decoupling and Europe’s defence build out, are introducing structural uncertainty. For you as an investor this means margin for error has narrowed: growth excesses are being corrected and rate relief might be delayed, so positioning needs to reflect a more cautious regime.

Deep Dive

The technology-led rally that dominated equities is now meeting resistance. According to Goldman Sachs, the dominance gap between the “Magnificent Seven” and the rest of the market is set to compress substantially: earnings growth of the top names is expected to outpace the rest by just ~11 percentage points in 2025, down from ~39 points in earlier years. 

Simultaneously, the broad AI supply-chain including hardware enablers, software, infrastructure and data companies, many outside the marquee names, is gaining attention.

Why it matters is that with valuations for mega-caps running rich, the growth premium is narrowing. Meanwhile banks such as Morgan Stanley and asset managers like Pictet Asset Management flag that risk premia across equities are compressed and many assets trade above long-term norms. 

For investors this signals that the next leg in the cycle may favour breadth and rotation rather than a one-horse show.

The impact on Investors is that growth stocks remain exposed to disappointment, especially if the leading names fail to deliver the next wave of productivity gains or margin expansion. Conversely, companies previously overlooked with credible AI exposure but lower valuations may offer better risk/reward. As stated by GS: “Magnificence may be found in quality companies beyond just the 7 in 2026.” 

You should consider trimming exposure to over-valued mega-caps and redeploying capital into pockets of the theme that are structurally relevant but cheaper, think semiconductor equipment, industrial AI applications, data-infrastructure and selected EM technology beneficiaries. Also maintain discipline on valuation: historical precedents suggest leadership shifts often coincide with earnings shortfall and multiple compression.

Investor Takeaways:

• Rebalance from concentration risk towards diversification within the AI ecosystem and across sectors.

• Keep an eye on earnings trends beyond the headline names; broadening participation is the next phase.

• Manage duration and liquidity risk: higher yields and slower growth heighten discount-rate sensitivity.

Quick Insights

• Investors pulled more than $85 billion into global long-term funds in September 2025, the largest monthly inflow of the year to date. 

• Emerging market equities rose ~4.6% in the month, led by Asia >5%, while risk premium compression in developed markets is pushing premium seekers abroad. 

• The global economy is forecast to grow just ~3.2% in 2025, as structural headwinds, geopolitics, trade fragmentation and debt loads will finally bite. 

• The 10-year U.S. Treasury yield at ~4.14% is approaching nominal growth rates, raising questions about further upside in bonds unless inflation falls.