October 2025 index market overview: the reemergence of risk and volatility

The start of October 2025 has delivered a sharp correction in global equity markets, abruptly ending the period of investor exuberance and all-time highs for major US indexes. Renewed Sino-US trade tensions acted as the primary catalyst, triggering a slide in stocks that was amplified by elevated investor positioning and existing market fragility. The increase in volatility and focus on macroeconomic and political risks defines the outlook for the remainder of the month.

Key market highlights for October 2025 

The major global indexes posted a mixed bag of returns over the past month. 

• US indexes were subdued. The S&P 500 closed at 6,553, showing a month-over month (MoM) decline of -0.5% but remaining up 12.7% year-over-year (YoY). The Nasdaq was an exception, rising 1.0% MoM to 24,222, and posting a strong 19.5% YoY gain. The Dow Jones saw a modest rise of 0.2% MoM, closing at 45,480, and was up 6.1% YoY.
• European markets fared little better. The FTSE 100 strengthened by 1.4% MoM to 9,427, up 14.2% YoY. In contrast, the DAX 40 weakened by -1.1% MoM to 24,241, despite a very strong 25.1% YoY performance.
• The MSCI World Index was down -0.4% for the month. 

Related market indicators snapshot (as of 10 Oct 2025) 

Key related indicators reflected a jump in market uncertainty. 

• The S&P 500 12-month forward P/E was 22.5 (MoM change: -0.1).
• The S&P 500 VIX saw a sharp increase, rising 7.0% MoM to 21.6%.
• Gold surged significantly, up 10.6% MoM and 51.3% YoY, reaching $4017/oz.
• The US 10-year bond yield stood at 4.05%. 

Critical headwinds for US equities 

Multiple risks continue to pose near-term downside pressure for US indexes. 

• Trade tensions erupt: The market slide on October 10th was catalyzed by China imposing tighter restrictions on the export of rare earth materials, which was quickly met by the US announcing a potential 100% tariff on all Chinese goods starting in November.
• Investor exuberance and leverage: Prior to the correction, investor sentiment was high, with the American Association of Individual Investors (AAII) weekly survey showing 45.9% of respondents were bullish. This was accompanied by a stretch in valuation; the S&P 500 IBES 12-month forward EPS was 23.2x ahead of the correction, a valuation level similar to the dot-com bubble period.
• Concentration risk: The increasing concentration of the Nasdaq 100 is a significant risk. The top five companies in the index (Nvidia, Microsoft, Apple, Alphabet, Amazon) make up 53.68% of the index weight.
• Government shutdown: The ongoing US Federal government shutdown (starting October 1st) is likely to have a corrosive effect on investor sentiment and create uncertainty surrounding key US economic data releases. 

European indexes: a study in divergence 

FTSE 100: a defensive outperformer 

The UK's FTSE 100 has continued to post all-time highs, climbing 1.4% MoM. Its structure offers a degree of defensiveness. 

• Sector mix and valuation: The FTSE 100 is not concentrated at the sector level, with an absence of notable IT-focused companies. This mix results in a more relaxed earnings multiple. The overall P/E ratio has lifted to 13.1x, which is close to its post-millennium average (13.3x).
• Outlook: A scenario analysis suggests that a 15% YoY increase in earnings and a rise in the P/E ratio to 15x would take the FTSE 100 index to 11,360, representing a 19.7% YoY rise. 

DAX 40: facing headwinds 

The German DAX 40 weakened by -1.1% MoM. 

• Concentration: The top five companies comprise 42.3% of the DAX 40 index on a market capitalisation weighted basis, suggesting a high degree of index concentration.
• Stretched valuation: The DAX 40 P/E ratio remains steady at 14.9x, above its 2004- 2025 average of 12.3x. Elevated valuations are placed on several large companies, such as SAP at 33.1x and Siemens Energy at 33.2x.
• Earnings disconnect: DAX 40 earnings per share have declined for each of the past three months (down 1.3%). Meanwhile, analyst EPS growth expectations have risen to 10.1% YoY. This disconnect between actual earnings decline and analyst optimism is stretching valuation. 

Upcoming economic calendar & corporate earnings 

The market will be watching several key events and corporate earnings reports from mid October to early November. The US Federal Government shutdown creates uncertainty regarding the release of economic data like the CPI and Employment Report. 

Important dates to watch include: 

• Tuesday, October 14th: US: JPMorgan reports earnings.
• Friday, October 24th: US: CPI (Sep) is scheduled, but the BLS has re-scheduled the release due to the US Federal Government shutdown.
• Wednesday, October 29th: US: The Federal Reserve FOMC meets, with the fixed income market pricing a 25bp rate cut to 4.0%. US tech giants Microsoft and Meta Platforms also report earnings.
• Thursday, October 30th: US: Advanced GDP (Q3) is due, with the Atlanta Federal Reserve's GDPNow estimate currently hovering around 3.8% QoQ SAAR. US tech companies Apple and Amazon also report earnings.
• Friday, November 7th: US: The Employment Report (Oct) is due. 

Stay updated 

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