Australian equities outperformed global markets in October, with the S&P/ASX 200 returning 1.4 per cent for the month. The local market’s limited exposure to technology was an advantage as the global AI trade unwound, and falling bond yields encouraged investors back into large, defensive companies. Utilities, financials and health care were the strongest sectors, while materials was the weakest.

 

Rate-sensitive assets rebounded in October as long-dated bond yields eased from their early-month highs, recovering part of the ground lost in the September quarter. The US 10-year Treasury yield reached about 5.35 per cent on 7 October before falling to just under 5 per cent by month end. Global REITs and infrastructure behave as bond proxies given their long duration cash flows, so the retreat in yields, together with a rotation out of AI-related technology stocks into more defensive areas of the market, was a tailwind for the sector. 

 

Australian listed property gained 1.6 per cent in October but is down around 11.7 per cent for the year to date. Investors began to look through to the possibility that valuations had reached a trough, and interest rates are nearing their peak. Global REITs, hedged into Australian dollars, returned 2.5 per cent in October, taking the year-to-date return to 5. 6 per cent. Global infrastructure, also hedged, returned around 7.7 per cent in October, more than recovering the 4.7 per cent loss in September and lifting the year-to-date return to around 12 per cent. Seen as an inflation hedge with stable cash flows, the asset class benefited from lower real discount rates and the shift towards defensive sectors.

 

The Federal Reserve left the Fed funds rate unchanged at 3.75-4.00 per cent on 28 October, with two members dissenting in favour of a further 25 basis point increase. The statement upgraded its description of economic activity to “strong”, and futures markets are pricing around an 85 per cent chance of another increase at the 9 December meeting. 

 

Australian inflation accelerated, with the monthly CPI rising 4.3 per cent in the year to September and the quarterly trimmed mean up 3.6 per cent, above the RBA’s expectations. The RBA raised the cash rate by 25 basis points to 4.85 per cent on 3 November, its fifth increase of 2026 and the highest level since late 2008.

 

The US midterms saw a resounding rebuke of Trump’s policies, with a blue wave seeing Democrats retake control of both the House and the Senate and various governorships in red states. However, the blue wave does have significant implications particularly given Trump’s sensitive character and the unusual nature of the Trump Administration. In particular:

 

Congress will now be a check on Trump’s actions at least domestically

 

More regulation around tech and AI – particularly putting a brake on data centres in states where Democrats won the governorship.

 

Trump moving into being a lame (or angrier) duck President could see him become more aggressive in foreign policy.

 

Fears that tax hikes and bigger government are on the way particularly if a Democrat wins the 2028 presidential election. 

 

 

The risk of a further correction in shares remains high. The threats from high and sticky inflation, ongoing central bank rate hikes, excessive public debt driving rising bond yields, the risk of another spike in oil prices, AI bubble and data centre worries, and slowing growth and rising rates in Australia remain. A rotation from tech to non-tech was providing some support for US shares but even non-tech shares came under pressure in the last week. It’s too early to say that the correction in shares is over particularly given the long list of worries and this leaves US, global and Australian shares vulnerable. However, at this stage strong US earnings growth (even outside tech) and no indications of a US recession suggest that the pull back is more likely a correction rather than a new bear market.