Market Update November 2025: AI Masks Weakness
Earnings remain strong, buoyed by AI-driven investment and narrow leadership—but under the surface, inflation surprises, rate constraints, and valuation risks are telling a different story.
In this November 2025 Market Update, Stephen Furness (Director and Investment Committee Chair, MGD Wealth) is joined by Michele Santangelo (Co-Head of Asset Allocation at Quilla Consulting) to unpack the crosscurrents shaping markets.
From AI-fuelled US earnings to rising Australian inflation and diverging central bank paths, the conversation explores what’s driving short-term resilience—and where underlying risks may be hiding. Quilla is a long-standing research and asset consulting partner to MGD Wealth and a trusted voice on macroeconomic drivers and investment positioning.
Key Takeaways
AI spending is lifting US earnings, but broader economic signals remain weak.
Inflation in Australia is rising again, keeping pressure on households and policy.
Central banks are diverging, with the Fed cutting and the RBA holding.
Australian equities appear overvalued, while US valuations look more reasonable.
Markets face growing risks, including stagflation and potential repricing.
Market Conditions: Strong Signals, Soft Undercurrent
As 2025 winds down, global growth is softening but not collapsing. Michele pointed to a period of below-trend growth extending into early 2026, with potential reacceleration if policy settings loosen further.
In Australia, the growth outlook is slightly more upbeat. “We’re starting from a lower base and our economy is more rate-sensitive,” Michele explained. “That’s helped recent data but the path forward is still uneven.”
Rising unemployment and stubborn inflation are giving the RBA pause, and recent market pricing now suggests only a slim chance of further cuts over the next year. “The RBA is constrained,” Michele said. “The data simply doesn’t give them room to move.”
Inflation and Policy: Surprise Reversal for the RBA
Australia’s inflation story remains complex. Core and headline inflation measures have lifted, driven by a broad mix of inputs—most notably, services inflation, insurance, housing, and government-regulated pricing. “It’s not narrow, and it’s not easing fast enough,” Michele warned.
In contrast, the US has already begun easing. The Federal Reserve cut rates in both September and October, with policymakers citing a weaker labour market despite upward inflation revisions.
“They’re viewing current inflation as transitory—more tariff-driven than structural,” said Michele. “That’s what’s giving them the confidence to cut.”
Currency View: A Stronger AUD Ahead?
While currency forecasting is always difficult, Michele expects the US dollar to remain under pressure and the Australian dollar to strengthen over the next 12 to 24 months—potentially moving toward US$0.68–0.70, assuming inflation and growth dynamics continue to diverge.
Earnings and Valuations: AI’s Influence Grows
Despite the macro headwinds, earnings growth expectations remain robust. The S&P 500 is forecast to grow earnings by 12.9% in 2026 and 11.2% in 2027, while the ASX 200 is projected at 8.7% and 8.3% respectively.
“Much of the US market’s strength is being driven by massive capital expenditure in AI infrastructure—a trend that’s propping up earnings even as broader economic signals weaken,” Michele said.
He also highlighted the nuance in US valuations. While headline indices may appear expensive, removing the influence of the “Magnificent Seven” shows the equal-weighted S&P 500 is actually undervalued relative to its 10-year average.
Locally, the ASX 200 is trading 13% above its historical average—largely driven by heavyweight banks. “CBA remains one of the most expensive banks globally,” he noted.
The AI Effect: Driving Momentum and Market Sentiment
A major driver behind US resilience? AI-fuelled capital expenditure. “Hyperscalers like Amazon, Microsoft, and Google are significantly expanding their infrastructure,” Michele said. “That capex—along with the broader AI ecosystem—has accounted for nearly half of US GDP growth this year.”
For now, that growth engine continues to underpin earnings and sentiment, even as other sectors show signs of fatigue.
Risks: Repricing and Stagflation Still in Play
Despite strong earnings forecasts, Michele cautioned that expectations are elevated and vulnerable.
“We’re seeing signs of stagflation in key survey data,” he said. “If inflation remains sticky while growth disappoints, the risk of repricing becomes real.”
With valuation dispersion and geopolitical risk still lingering, a more cautious market phase could emerge quickly if assumptions are challenged.
Portfolio Positioning: Disciplined, Diversified, and Forward-Looking
Against this backdrop, Stephen and Michele discussed key themes influencing portfolio strategy:
Australian credit remains preferred over sovereign debt, offering better yield with manageable risk.
Global equities are favoured over Australian equities, with selective exposure to emerging markets and quality small/mid caps.
Private equity and alternative assets remain constructive, supported by growing M&A and IPO activity.
Gold exposure is being rebalanced, trimming recent gains while remaining open to re-entry on weakness.
Stephen noted: “This is a time for discipline. Markets are still offering opportunity but they’re demanding a more nuanced approach. That’s exactly where our research-led governance and manager oversight add the most value.”
For any questions or to discuss your portfolio, reach out to your MGD Wealth advisory team.
Important Note: Any advice included in this video and article is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.
