Markets:

This was another spectacular month for our funds –all posted returns above their historical averages– especially considering September’s typical weakness in the stock market. Statistics did not hold true this time.

Indices continued their upward trend: MSCI World (in EUR): +2.69%, S&P 500: +3.53%, Nasdaq 100: +5.40%, Eurostoxx 50: +3.33%. The USD fell by 0.34% against the EUR. The yield on the US 10-year bond dropped slightly from 4.24% to 4.15%.

The main driver of this rise was Jerome Powell’s unexpected support of risky investments. At the FOMC meeting on September 17, he lowered rates by 0.25%, to 4.25%, which was in line with market expectations. Nevertheless, he was particularly dovish regarding future cuts, highlighting the labor market’s weakness and downplaying the significance of inflation and the impact of tariffs on it.

The Fed’s concern is understandable. Job offers are growing at a slower pace due to the emergence of AI in production processes, which reduces the need for human labor to maintain or increase it. Thus, the still low unemployment rate is not due to an increase in job offers, it is due, rather, to a weak demand for employment caused by the decrease in immigration into the US, and the reluctance of those already in the US to apply for jobs, afraid of eventual deportations if they are in a temporary or irregular situation.

In this scenario, an economic shock would quickly lead to higher unemployment, and employment is one of the Fed’s two mandates. The other mandate –inflation– seems to be holding steady at around 3%, despite Trump’s tariffs, and the Fed’s unexpected concern for employment and greater sensitivity to maintaining growth, raised expectations of interest rate cuts and boosted markets.

Still, at these valuation levels, to keep up with the growth markets are pricing in, is asking companies a lot. In this setting, it seems more sensible to use hedging strategies, such as Altex DIPS and Altex USD, to capitalize on future market corrections and the USD. Altex DIPS contributed between +53 bps and +91 bps to returns, depending on the fund, while the USD hedge added another 2 bps.

There was significant dispersion in indices. Large companies outperformed small companies (XLG +4.90% vs. VIOO +0.90%), Growth outperformed Value (IWF +5.22% vs. IWD +1.42%), Momentum outperformed Low Vol (JMOM +3.90% vs. SPLV +0.16%). By sector, Gold Mining (GDX +20.94%) and Artificial Intelligence (CHAT +14.38%) posted brilliant returns, while Regional Banks (KRE -2.78%) and Materials (XLB -2.42%) lagged far behind.

In the rest of the world, China rose 7%, India was up 0.15%, Europe rose 3.33%, and Japan was up 2.47%.

In Europe, rates remained stable except in France, where risk premium vs. Germany rose to match that of Italy. Political instability in the eurozone’s second-largest economy accounts for the markets perceiving French debt as higher risk.

Outlook and positioning

We face the fourth quarter of the year with an upward trend and somewhat expensive valuations, which increase the likelihood of a correction at the beginning of the period, although the outlook remains positive for the end of the year. We maintain a positive stance on equity portfolios with overexposure to industrial sectors and gold. An environment of moderate growth, inflation, and an accommodative monetary policy will favor a “Blend” approach with exposure to high-quality growth sectors, and cyclical sectors with secular trends and strong structural demand. Hedging strategies allow us to stay invested and keep us from falling behind in bull markets where dominant factors are threatened by short-term valuation demands.