AI-driven growth meets financial fragility
Despite headwinds like a government shutdown and weak private employment data, global markets continue to climb, buoyed by expectations of interest rate cuts and enthusiasm around artificial intelligence (AI). The U.S. economy has become increasingly tethered to stock market performance, with the trajectory of AI-related capital expenditures emerging as a key driver of long-term growth. AI investments are currently contributing nearly 1 percentage point to GDP growth, a significant boost given that GDP growth in Q1 and Q2 averaged just 1.4%. However, recent scrutiny, especially around deals involving Nvidia, Oracle, and OpenAI has raised questions about the sustainability and timing of returns on these investments. OpenAI remains heavily reliant on investor funding, with projections showing a $115 billion cash burn through 2029. Despite growing revenues, the company is not expected to turn a profit until at least 2029, and its commitments far exceed current income levels. Investors are now grappling with a paradox: AI spending is surging, which fuels the broader market mood, but the payoff timeline remains uncertain. There is a growing concern that the scale of AI-related capital expenditures may significantly outpace the financial returns they generate, particularly if the anticipated productivity gains fail to materialize at the scale or speed required to justify such investments.
While the long-term potential of these technologies could be transformative, the timeline for realizing meaningful economic impact may extend well beyond the investment horizons of most stakeholders, raising questions about sustainability and strategic alignment.
So far, there are no strong signs of market exuberance or euphoria, and the term ¨bubble¨ has been avoided. Interestingly, weak economic data has been viewed positively by investors, as it raises the likelihood of Federal Reserve rate cuts — a prospect that has helped lift markets. This expectation continues to act as a key driver of momentum heading into year-end. While we’ve maintained a constructive outlook for both the fourth quarter and the year overall, it has been surprising for us and many others to see the market advance without any meaningful, tradable pullbacks. That said, October is historically known for heightened volatility, and we may still see some drawdowns before the year concludes.
GLOBAL ECONOMY
USA
The U.S. economy demonstrated resilience in September, with equities performing strongly despite seasonal headwinds. The Federal Reserve cut interest rates by 25 basis points and signaled more cuts ahead, boosting investor confidence. Jerome Powell stated that the current rise in inflation is primarily due to tariffs driving up goods prices, and he expects this to be a temporary, one-off occurrence. However, the labor market revealed signs of weakness: private employers shed 32,000 jobs, and year-to-date job growth was revised downward by a staggering 911,000 positions. While initial jobless claims fell to 218,000, suggesting some resilience, hiring momentum has clearly slowed – especially among small businesses. Political risks further contributed to market uncertainty, including a looming government shutdown that delayed key economic reports and rising tensions over domestic troop deployments and foreign policy shifts. These developments complicate the Fed’s decision-making, as strong GDP growth and inflat
Overall, investors have plenty of reasons to be optimistic right now, but that makes the outlook for the coming months harder to predict. Stock markets are hitting record highs, interest rates are trending downward, and corporate earnings remain strong. Upcoming tax cuts are expected to further boost company profits. However, the current momentum may be too good to last. Signs of market overheating, such as speculative trading and stretched valuations, are beginning to surface and raise concerns about potential correction.
Europe
In September the EU economy showed signs of cautious optimism amid persistent global challenges. Real GDP growth for the euro area was revised upward to 1.2% for the year, supported by rising real wages, strong employment, and increased government spending, particularly in infrastructure and defense in Germany. Inflation remained stable around the ECB’s 2% target, with headline inflation projected at 2.1% for 2025, though expected to ease to 1.7% in 2026.
Trade tensions, especially higher U.S. tariffs on European exports, continued to weigh on external demand and contributed to volatility in economic activity. Despite this, the new US-EU trade agreement helped reduce some policy uncertainty. The labor market remained robust, with employment gains and lower wage pressures expected to moderate inflation further. Financing conditions improved due to recent monetary policy decisions, and the euro’s appreciation helped curb goods inflation.
Overall, while the euro area faces headwinds from global trade dynamics and energy costs, domestic demand and policy support are helping to stabilize the outlook. The ECB projects a gradual strengthening of growth through 2027, though risks from tariffs and geopolitical uncertainty remain.
Asia
In September 2025, China’s economic situation was marked by slowing momentum and rising domestic challenges, despite some resilience in exports and stock markets. GDP growth is forecasted at 4.8% for the year, but recent data showed weaker-than-expected performance in retail sales, industrial output, and fixed asset investment. The property sector remains a major drag, with real estate investment down nearly 13% year-to-date. Deflationary pressures persist, with core inflation hovering around 0.5%, and unemployment slightly rising to 5.3%, partly due to seasonal factors. The government is shifting focus toward a consumption-led growth model, supported by infrastructure investment and targeted fiscal policies. However, weak consumer confidence and income expectations continue to weigh on domestic demand.
EQUITIES
U.S. stocks extended their winning streak to five consecutive months in September, with the S&P 500 rising 3.5% and the tech-focused Nasdaq climbing 5.6%. The rally was fueled by interest rate cuts and continued enthusiasm around long-term AI growth trends. The Russell 2000 also marked its fifth straight monthly gain, surpassing its previous record high from November 2021. However, the gains were largely concentrated in large-cap stocks. The equal-weighted S&P 500 underperformed the traditional cap-weighted index by nearly 300 basis points. The so-called “Magnificent Seven” stocks had another strong month, with Tesla and Google standing out as top performers. Another major theme in September was the extraordinary surge of capital flowing into the AI sector. A standout moment came when Oracle revealed that its $300 billion backlog over the next five years is largely driven by OpenAI. OpenAI itself is expected to generate around $20 billion in revenue this year, but its projected cash burn could reach a staggering $115 billion by 2029.
Adding to the buzz, Nvidia and OpenAI recently outlined a potential agreement in which Nvidia may invest up to $100 billion in OpenAI. These figures underscore the scale of investment pouring into AI. Capital expenditures by hyperscalers are forecast to grow at a 30% annual rate, potentially reaching $500 billion by 2027. Zooming out, cumulative investments between 2025 and 2028 (excluding energy costs) could total around $2.9 trillion. This raises a critical question: When will these investments start to make financial sense? Sequoia Capital estimates that the money invested in AI infrastructure in 2023 and 2024 alone requires consumers and companies to buy roughly $800 billion in AI products over the life of these chips and data centers to produce a good investment return.
Bain recently estimated that by 2030, AI infrastructure spending will necessitate $2 trillion in annual AI revenue to deliver acceptable returns. For context, that’s more than the combined 2024 revenue of Amazon, Apple, Alphabet, Microsoft, Meta, and Nvidia.
European equities have regained investor attention this month as the market turns more constructive, driven by attractive valuations, record buybacks, and improving macro conditions. Stoxx Europe 600 ending just 1.2% below its March all-time high, the Eurostoxx 50 added 3.3% in September. The UK’s FTSE 100 hit a new record, boosted by strong mining stocks, while the German DAX lagged due to valuation concerns. Policy remained supportive: the Fed cut rates for the first time since December, and although European central banks are nearing the end of their easing cycles, the ECB held rates steady for a second meeting despite forecasts showing inflation below 2% through 2027. The valuation argument was on display this month’s again with d Europe’s relative appeal versus the US: the Stoxx 600 trades at ~15.6x forward earnings compared with the S&P 500’s 25.3x, while offering higher dividend yields. In September, Asian markets saw strong gains driven by the ongoing surge in AI-related stocks. Japan, South Korea, and Taiwan reached record highs, while Greater China markets climbed to multi-year peaks. Chinese tech stocks benefited from several positive developments, including progress in semiconductor self-sufficiency. South Korea’s Kospi index outperformed after the govTaiex index also surged, driven by strength in AI-related industries. Meanwhile, India lagged behind as foreign investors pulled out following the twin setbacks of a 50% U.S. tariff and increased H-1B visa fees. The AI sector has become a major driver of stock prices in China, though starting from much lower valuations compared to the U.S. Chinese tech stocks have gained momentum fueled by growing signs that the country is reaching self-sufficiency in advanced semiconductor production earlier than expected. This surge was partly inspired by the “DeepSeek moment” in January, which boosted entrepreneurial confidence and aligned with President Xi Jinping’s push for developing “new productive forces.” The real excitement centers around AI innovation, with Alibaba increasingly seen as China’s leading force in the field – often referred to as the country’s “AI engine.”
BONDS
In September 2025, bond markets across Europe, the United States, and Asia exhibited divergent trends. In Europe, Treasury yields remained stable, with 10-year government bonds yielding around 3.0–3.3%, as the ECB held rates steady. Corporate bonds performed well, with investment-grade yields at ~3.0% and high-yield bonds at ~5.0%, supported by tightening spreads and strong demand. In the U.S., Treasury yields rose despite a Fed rate cut, with the 10-year yield climbing to ~4.15–4.18%. Corporate bonds remained attractive, with investment-grade yields at 4.83% and high-yield at 6.53%, reflecting tight spreads and solid investor interest.
European bond yields are expected to decline gradually through the end of 2025 and into 2026. The European Central Bank (ECB) has already initiated a rate-cutting cycle, with the deposit facility rate lowered to 2.0%, and further cuts are anticipated as inflation continues to ease and growth remains subdued. The ECB is likely to maintain a dovish stance, aiming to support the economy amid geopolitical tensions and fiscal constraints. As a result, short- and medium-term bond yields (0–10 years) are expected to fall, while longer-term yields may remain elevated due to fiscal pressures and increased government borrowing. Investment-grade corporate bonds are expected to benefit from falling rates, while high-yield bonds may face volatility due to economic uncertainty.
In contrast, U.S. bond yields are expected to remain elevated or even rise slightly in the near term, driven by fiscal concerns, inflation risks, and heavy Treasury issuance. The 10-year Treasury yield is forecast to hover around 4.2 – 4.5%, and the 30-year yield may exceed 5%, reflecting investor demands for higher compensation amid rising deficits and political uncertainty. Although the Federal Reserve has started cutting rates, the pace is expected to be cautious due to persistent inflation and geopolitical risks. The yield curve has normalized, but long-term yields are under upward pressure from increased term premiums and weakening demand for U.S. debt.
COMMODITIES AND CURRENCIES
Through 2025 gold has experienced a significant surge, driven by a combination of geopolitical tensions, persistent inflation, central bank buying and investor demand for safe-haven assets. Prices have climbed over 40% year-to-date, with gold breaking through the $3,000 per ounce mark earlier in the year and reaching highs around $3,500. As of early October, gold is trading near $3,890 per ounce.
Looking ahead to the end of 2025, most analysts and institutions maintain a bullish outlook. Forecasts suggest gold could close the year between $3,700 and $4,000 per ounce, depending on macroeconomic developments and central bank policies. The World Gold Council notes that while some short-term pullbacks are possible, the overall trend remains upward, especially if economic uncertainty persists. For 2026, the consensus remains optimistic. Projections from major financial institutions like Goldman Sachs, J.P. Morgan, and others estimate gold could rise further, reaching between $4,000 and $4,200 per ounce by mid to late 2026. This continued growth is expected to be fueled by structural demand from central banks, ongoing geopolitical risks, and a potential easing of U.S. interest rates, which would enhance gold’s appeal as a non-yielding asset.
In September 2025, the EUR/USD exchange rate hovered around 1.17, showing relative stability after a modest summer rebound. The euro gained strength earlier in the year due to expectations of a dovish U.S. Federal Reserve and resilient Eurozone data. Forecasts suggest the euro could end 2025 near 1.22. The Swiss franc appreciated significantly against the U.S. dollar in 2025, with the USD/CHF exchange rate trading around 0.80 in September. This strength was primarily driven by heightened global risk aversion and the franc’s enduring status as a safe-haven currency. Switzerland continues to benefit from a highly stable political environment, sound public finances, and a robust institutional framework. These factors reduce the likelihood of inflationary policy responses and enhance the credibility of the Swiss National Bank (SNB). As a result, the Swiss franc remains an attractive asset during periods of market uncertainty. Given these dynamics, we anticipate continued appreciation of the franc over the coming
Source: www.bendura.li
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein