Crédit Mutuel AM: Will the market's bullish trend last?

9 oktober 2025

By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

The summer period was favorable for all risky assets. Several factors explain this positive trend that began at the end of April: improving growth prospects, less uncertainty related to customs duties, more accommodating central banks, and investors who have been that since liberation day up until today are less invested following the Liberation Day shock. The question today is whether these favorable factors are still in place or whether certain events could compromise this trend.

Regarding growth, forecasts are gradually improving, with continued strong consumption in the United States and good resilience of eurozone indicators. Some doubts still remain about the speed of implementation of the German investment plan, but the trend is unlikely to reverse. The rise of the euro and the fall in energy prices in recent months continue to give some momentum to European manufacturing sectors after three years of prolonged economic weakness.

In the United States, the main issue is how consumption will evolve over the coming months. Rising inflation, combined with a labor market where demand is weakening, is expected to lead to a decline in real wage inflation in the medium term. This would exert downward pressure on consumption. Here, we should recall two points that seem crucial:

First, in addition to the weaker demand for labor, it should be noted that labor supply is also falling sharply. The latest forecasts from the St. Louis Fed show that only 32,000 to 82,000 job creations per month are needed to keep the unemployment rate stable (Lower Immigration Projections Mean Lower Breakeven Employment Growth Estimates). The H1B visa reform is expected to further exacerbate this phenomenon.

The second point to remember is that American consumption increasingly relies on the wealthiest households, and they are benefiting fully from the rise in financial assets. A portion of the American population will suffer from the decline in real wages, but from a purely economic perspective, this may not have a tangible impact on consumption as long as the wealth effect remains so positive. Thus, we believe that American consumption may once again surprise skeptics by proving more dynamic than expected.

On the other hand, this decline in job supply will have negative long-term impacts on potential growth, but it is still too early to be concerned about this.

Positive signals, but geopolitical and market risks to watch closely

The US administration's tariff policy remains difficult to predict, as evidenced by the implementation of additional 50% tariffs on kitchen and bathroom furniture starting October 1^st. Like in June, the market has become accustomed to this uncertainty; as long as agreements between the main zones remain unchanged, reactions should remain measured.

Inflation dynamics remain the same as before the summer, with eurozone inflation in line with ECB expectations and US inflation gradually rising. On the euro side, we anticipate lower-than-expected figures in the medium term (due to weak consumption, the delayed effects of the euro's rise, and the drop in oil prices), but we believe there is little to expect for from the ECB over the next few months. Across the Atlantic, the gradual increase is expected to continue, but the risk seems slightly less significant than before the summer. Indeed, leading indicators have recently shown a decrease inflationary risk. This is good news for the Fed, but less good news for corporate margins. Companies are reporting difficulties to pass on price increases to end consumers.

In the bond markets, expectations of Fed rate cuts seem optimistic to us, given the growth dynamics, but it is difficult to predict how the balance of power between the executive branch and the Federal Reserve will evolve. The Supreme Court has ruled in favor of Lisa Cook for the time being but will pronounce itself again in January.

On the geopolitical front, tensions between Russia and its close neighbors are gradually increasing. It's impossible to predict how this will turn out, but currently, it's a risk that the markets are little (if at all) factoring in. The risk of a slippage on one side or the other seems greater to us today than before the summer.

The context is therefore not very different from before the summer, and our allocations are logically quite similar. A slightly positive bias on equities, with a preference now for the emerging markets/China rather than the United States due to stretched valuations. Even with very optimistic profit forecasts, the upside potential seems quite low to us. On the euro equity side, we remain positive on banks as well as industrials. On the bond markets, we maintain our caution on the long end of the curve and a neutral stance on credit spreads due to unattractive levels again. And, as we have done for over a year now, we maintain a positive view on gold.

October Outlook

No much changes in environment, but valuations are gradually tightening. On the geopolitical side, the risk of a slippage between Russia and neighboring countries seems to be increasing, but to counter this, fiscal and monetary support remains present. In the United States, the shutdown could lead to a little more volatility if it were to last.