Please see below, an article from Tatton Investment Management, analysing the key factors currently affecting global investment markets. Received this morning – 15/09/2025
Markets’ outlook preference turns positive
It was a slightly confusing week. US 30-year government bond yields dropped sharply – suggesting weaker growth expectations – but small cap stocks had a strong week, suggesting the opposite. In a sense, both narratives are true. Weaker US jobs data suggests slower growth, but locked in a Federal Reserve rate cut this Wednesday. Incoming tariff revenues also make the US a more reliable borrower, making treasury bonds look like good value.
Stock markets, on the other hand, see decent corporate profits for large cap stocks. Small caps have struggled with high borrowing costs, but those will fall as the Fed eases and growth rebounds. Investors are looking through the current slowdown to improvement later on.
Moreover, American business sentiment is still strong – and inflation is picking up. We calculate that 3-month annualised inflation is now running above 4%. Companies feel they can pass on tariff costs, so inflation will likely continue over the next few months. Does that mean the Fed shouldn’t cut? Not really, as their focus in on weak employment, which makes a wage-price spiral unlikely. US economic resilience means there is no emergency to cut rates – but on balance they are probably a little too high.
The rosy stock market view doesn’t match up with current geopolitical tensions either. Neither Russia’s polish incursion of Israel’s strike on Qatar upset risk assets. Neither are likely to cause retaliation (and in Russia’s case, could restore a US-Europe alliance) but they do raise risks. Those risks aren’t themselves enough to upset the outlook; that would require clear signs of economic disruption. Global instability can make markets more volatile if and when there is a strong catalyst for a downturn. Without that catalyst, there’s nothing to stop equities grinding higher. With recession now highly unlikely, it’s no surprise that investors are focussed on the positives, not the negatives.
Is China’s rally real?
Chinese stocks have outperformed all other major regions year-to-date and on a 12-month basis. That’s remarkable, considering the economic challenges it faces: tariff pressures, persistent deflation and weak consumer demand. Recent trade détente with the US can’t explain China’s rally alone. The usual explanations are government stimulus (including interest rate cuts) and a tech boom following DeepSeek’s AI release. Underpinning these has been a strong capital rotation into stocks – partly from property (the traditional Chinese savings vehicle) but also from low-yielding bonds. At the start of September, China set a new record for debt-financed stock ownership: ¥2.29 trillion.
The record it beat had stood since 2015 – a year marked by a euphoric China rally and subsequent stock market collapse. Beijing was also trying to reduce excess production capacity back then, exactly as it is now. But we don’t think this is 2015 again. Debt-financed positions account for just 2.3% of market cap, compared with 4.7% a decade ago, and policymakers aren’t as gung-ho as they were – even trying to calm the rally by allowing more short-selling and cracking down on speculative buying. Beijing’s efforts to fight deflation are softer than in 2015 too. The government is trying to limit excessive price competition and support corporate profits, but isn’t shuttering capacity or forcing mergers.
Beijing has struggled to support consumption over the past year, but the resolve is clearly there – evidenced by Premier Li Qiang’s recent promise to support a fledgling property market recovery. That’s good for China’s long-term prospects, and abundant liquidity is good for medium-term stock flows.
Global investors should keep in mind that Chinese equity comes with an added risk of stranded capital – either from government crackdowns or Chinese-Western financial decoupling. But its stock market has a lot to offer: a well-supported rally now, and diversification benefits for the future.
Make Tesla Magnificent Again
The ‘Magnificent Seven’ US tech companies dominated the Q2 earnings season, but one member doesn’t look so magnificent; Tesla’s profit and share price performance has been dire this year. The electric carmaker is no longer in the top seven US companies by market cap, having been supplanted by Broadcom.
Tesla talk often focusses on Elon Musk and his on-and-off friendship with Donald Trump, which hurt Tesla sales in Europe. Rumours of the board looking to replace Musk were quashed by its $1tn compensation offer. But Tesla’s struggles aren’t all about Elon: it has also lost market share to cheaper alternatives like China’s BYD.
Tesla’s latest earnings call pivoted to newer tech like robotaxis and Optimus robots. Some of that is a sales pitch to investors (there are many hurdles to clear before techno-optimism turns into profit) but it’s also a long-term strategy. Tesla has always sold itself as a pioneer in a new landscape rather than a car manufacturer. Now that the rest of the EV market is catching up, Tesla is looking for even newer landscapes.
That’s very different to the rest of the Mag7, most of whom are established players with strong cashflows. A promise to dominate driverless cars and future robots is a different investment pitch to the likes of Apple. That doesn’t make a bad pitch; Morgan Stanley researchers rate Tesla’s stock highly for its earnings potential.
But we should question how useful it is to group Tesla in the Mag7. All those companies are pivoting toward frontier sectors, but none of them base their current valuation as highly on those sectors as Tesla. Its pivot to the future might make Tesla magnificent again one day, but in the here and now, investors should evaluate companies according to their risk-return profiles, not catchy names.
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Marcus Blenkinsop
15th September 2025