Our multi-asset investment views - October 2025
Recent weeks have seen increased concerns of a "soft patch" in the US due to weaker payrolls, a government shutdown and ongoing risks around tariffs. We continue to view the risk of recession in the US as being low for now. The retirement of baby boomers and the clampdown on immigration have shifted the supply dynamics in the US labour market, leading to a low hiring / low firing equilibrium. We are starting to get concerned about frothiness in credit and equity markets and this month we downgrade US credit; after a prolonged period of insatiable demand for yield, credit spreads are tight and lending standards have relaxed amid high competition, with recent bankruptcies and write downs being symptomatic of this. We maintain our long position in equities, however, as corporate earnings remain supportive, with a preference for the US and China.
Our underweight position in US treasuries has been a source of underperformance in recent weeks, but we decided to maintain it given the extent of US rate cuts now priced into the curve and the fact that it is diversifying to our long equity and long gold positions (which are both liquidity-driven to an extent). We remain long gold as it provides a hedge against sovereign debt issues, inflation and geopolitical events. We also maintain our underweight position in the US dollar against the euro and Brazilian real. This month we implemented a long position in the Australian dollar against sterling and a long position in the Korean won against the Japanese yen to capture economic divergence across these countries.
All in all, we remain positioned for positive nominal growth, driven by the stimulative policies being pursued by the Trump administration.
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢 Equities
We continue to view the risk of recession in the US as being low for now. While signs of frothiness are emerging in equity markets, we view this as late-cycle behaviour rather than a sign of an impending recession, as corporate fundamentals are still solid.
🔴 Government bonds
We have maintained our negative score given the extent of US rate cuts now priced into the curve. Our models also suggest bond yields could grind higher.
🟡 Commodities
We remain neutral on commodities. We see a bifurcation in growth commodity markets, with potential for a sustained recovery in base metals off the back of supply disruptions. We continue to favour gold, as it remains an effective hedge against a range of adverse scenarios.
🔴🔽Corporate bonds (credit)
We have downgraded credit this month. Credit pricing leaves limited cushion against deteriorating fundamentals.
Equities
🟢 US
We maintain a positive outlook on US equities. While signs of frothiness are emerging, we view this as late-cycle behaviour rather than an indication of an impending recession, as corporate fundamentals and earnings remain solid.
🟡 UK
A weakening fiscal position and unattractive macroeconomic fundamentals lead us to maintain a neutral stance.
🟡Europe ex UK
Although there are attractive opportunities, particularly in European mid-caps, large-caps face sluggish profit growth and more limited scope for positive surprises.
🟡Japan
We remain neutral. While the recent rally has been supported by diminished trade tariff uncertainty and corporate reforms, fundamentals remain less compelling and short term fluctuations in the Yen may cause disappointing performance.
🟢 Global Emerging Markets (EM)1
Emerging market equities have shown broader and more balanced performance year-to-date, supported by a rotation across regions and sectors.
🟢 Asia ex-Japan: China
Activity indicators point to a rebounding growth backdrop, which could support a valuation catch-up as Chinese equities still lag global peers.
🟢 EM Asia ex China
We remain positive on Taiwan and Korea, two export-oriented economies that continue to benefit from their strength in manufacturing and position in the Artificial Intelligence (AI) supply chain.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴US
We have maintained our negative score, given the extent of US rate cuts now priced into the curve. Our models also suggest bond yields could grind higher.
🟡 UK
While we have seen further labour market softening, we need to see more evidence that sticky inflation risks are abating before the Bank of England can resume rate cuts. This leaves us neutral overall.
🟡Europe
We remain neutral for now while acknowledging valuations appear expensive relative to fiscal developments and regulatory changes in the Netherlands.
🟡 Japan
The Bank of Japan appears to be at a crossroads, with inflation remaining resilient and the newly elected prime minister advocating more expansionary fiscal policies.
🟡 US inflation-linked bonds
Though we anticipate upside risks to inflation next year due to potential rate cuts and trade tariff impacts, we remain on the sidelines for now.
🟡 Emerging markets local currency bonds
We remain neutral. Valuations in Asia are starting to look rich offering limited scope for outperformance.
Investment grade credit
🔴🔽US
Credit pricing leaves limited cushion against deteriorating fundamentals. Isolated bankruptcies in the loan market point to growing vulnerabilities across the credit spectrum, prompting us to downgrade our score.
🟡 Europe
Europe is our preferred region versus the US, given its lower covenant concerns and its higher overall credit quality. However, we remain neutral for now as valuations remain elevated.
🟡 Emerging markets USD
We continue to take a neutral stance, as recent marginal improvements in demand and a more favourable macroeconomic environment are offset by unattractive valuations.
High yield bonds (non-investment grade)
🔴🔽US
We downgrade US high yield given some fragility in the consumer and labour market. In addition, signs of weakness are evident in private credit and loan markets.
🟡Europe
Higher credit quality, attractive valuations and hedged yields leave us with a preference for European high yield versus the US.
Commodities
🟡Energy
Recent data shows a substantial build of oil supplies on water. It is only a matter of time before this inventory build impacts the market, pushing prices lower.
🟢 Gold
We remain long gold as it provides a hedge against sovereign debt issues, inflation and geopolitical events.
🟢🔼 Industrial metals
We have upgraded industrial metals as there is potential for a sustained recovery in base metals off the back of supply disruptions, China’s renewed decarbonisation push, and stronger manufacturing data.
🟡 Agriculture
The backdrop remains steady. lower grain prices are being offset by strength in some soft commodities, but overall, US government subsidies for soybean production are suppressing prices further.
Currencies
🔴US $
We maintain a negative stance on the US dollar as foreign investors continue to diversify away from the dollar into gold.
🟡 UK £
The pound faces uncertainty ahead of the November budget, as growth–fiscal dynamics, the possibility of further Bank of England easing, and a steepening gilt curve all present challenges for the currency. We remain neutral for now.
🟢EU €
We maintain a positive outlook on the euro, supported by the region’s macroeconomic growth momentum and optimism around increased German defence spending.
🟡🔼 CNH ¥
As China’s exports show signs of recovery, we believe the Renminbi may stabilise around its current level, turning us neutral.
🟡 JPY ¥
We remain on the sidelines as we anticipate ongoing policy uncertainty. The prospect of an unstable coalition government in Japan may weigh on the yen.
🟡Swiss franc ₣
While the Swiss franc offers recession protection, we remain cautious due to its lower carry compared to other currencies.
Source: Schroders, October 2025. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.
Marketing material
Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.
For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.
Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.
