What happened in markets
The Australian sharemarket finished the week higher, with the ASX 200 gaining 1.04%, despite a more cautious global backdrop and some rotation away from growth-oriented shares. The strongest gains came from Utilities (+4.5%), Health Care (+3.9%), Consumer Staples (+3.4%) and Financials (+3.2%), with defensive sectors generally outperforming as investors showed greater risk aversion during the week. Consumer Discretionary (+2.2%) and Energy (+1.3%) also contributed positively. In contrast, Materials (-2.3%), REITs (-1.7%) and Information Technology (-1.3%) were the main detractors. The domestic economic backdrop remained mixed, with new home sales falling 17.5% in the September quarter, while expectations for a further interest-rate increase moderated during the week, providing some support to Australian equities. Overall, the market advanced despite weakness across several growth and resource-related sectors, with defensive shares and Financials driving much of the week's gains.
The US sharemarket pulled back over the week, with the S&P 500 declining 1.94%, as a sharp sell-off in technology and AI-related shares outweighed strength across defensive and commodity-linked sectors. Information Technology (-6.4%) was the main detractor, with semiconductor shares particularly weak as investors reassessed AI valuations and the substantial financing requirements associated with data-centre investment. In contrast, Consumer Staples (+5.1%), Energy (+5.0%), Health Care (+3.4%) and Materials (+2.5%) recorded strong gains, highlighting a rotation away from growth stocks towards more defensive and value-oriented areas of the market. Overall, the week's decline was heavily concentrated in technology and AI-linked shares rather than reflecting broad-based market weakness, with defensive sectors, Energy and Financials continuing to attract investor support.
The European sharemarket performed strongly over the week, with the STOXX Europe 600 gaining 2.13%, its best weekly performance since late June, as positive corporate earnings helped European equities withstand broader global weakness in technology shares. Retail (+5.4%) led the advance, while Utilities (+3.3%), Telecommunications (+3.3%), Health Care (+2.7%) and Automobile & Parts (+2.6%) also recorded strong gains. In contrast, Technology (-3.4%) was the weakest-performing sector amid the broader global rotation away from technology and AI-related shares, while Basic Resources (-1.9%) also declined. The macroeconomic backdrop remained challenging, with Eurozone inflation confirmed at 3.8% in September, remaining well above the European Central Bank's 2% target, while Brent crude approached US$109 per barrel late in the week. Overall, European equities proved relatively resilient compared with US markets, with broad strength across consumer, defensive and other sectors more than offsetting weakness in Technology and Basic Resources
Stock & sector movements
What caught our eye
The Midterm Wobble Is Right on Schedule
The softness in sharemarkets over recent weeks has arrived right on schedule. With Americans voting in the midterm elections on 3 November, the pattern we are seeing is one that has played out in almost every midterm year for decades.
The history here is remarkably consistent. Across almost a century of data, the S&P 500 has tended to deliver weaker returns in a midterm year than in other years, with the gap at its widest in September. Global shares typically fall around 4% from September into early October before recovering, often before polling day itself. This year has followed that pattern closely, with global shares sitting about 3% below their summer highs by late September.
What usually comes next is more encouraging. Since 1950, the S&P 500 has risen in every 12 month period after a midterm election, with a median gain of around 14%. That compares with roughly 4% in the year leading up to the vote. The reason is fairly simple. Uncertainty about government policy tends to peak early in a presidential term and fall to its lowest point in the third year, once the midterms have passed. Markets reward that clarity. Midterms also tend to deliver a divided government, which means fewer sweeping changes to the law. Since 1970, one party has controlled both the White House and Congress in only around 30% of years.
This cycle has two features worth keeping in mind. The first is that the President retains control over tariffs and foreign policy whoever wins Congress, so expect policy uncertainty to linger for longer than usual. Encouragingly, sharemarkets have become steadily less reactive to political announcements over the past year. The second is that oil and interest rates have done more to drive recent market moves than the election itself. Since the conflict between the US and Iran began in March, higher energy prices have tended to weigh on shares and push bond yields higher.
For investors, this suggests the recent dip is better understood as a seasonal pattern than a warning sign. Company earnings remain strong and investors have already turned more cautious, so a fair amount of worry is already reflected in prices. We are watching energy prices and central bank decisions closely because they are the factors most likely to interrupt the recovery that usually follows an election. History offers little support for repositioning a portfolio around an election result, and a diversified portfolio built around your goals remains the right foundation.
The week ahead
This week provides a relatively light economic data. In Australia, the US and Europe there's some manufacturing and services data releases across the week. Later in the week the US will provide an update on its Crude Oil inventories.