The final week of October capped a strong month for the T. Bailey funds, with returns across the range of 2.5% to 3.9% that were driven by the broad breadth of underlying holdings.
In equity markets, Meta, Amazon, Alphabet and Microsoft dominated the headlines during the week. While each continued to benefit from growth in AI-driven segments, their quarterly results revealed a noticeable divergence in the sustainability of their capital spending. Alphabet raised its capital expenditure guidance to as much as US$93 billion for the year and was rewarded by investors thanks to robust operating cash flow. In contrast, Microsoft, Meta and Amazon outlined capital expenditure growth so steep it would soon exceed free cash flow, raising questions about long-term funding and returns on investment. Meta fell sharply on Thursday despite meeting earnings forecasts, as investors questioned whether its AI investments - many of which lack direct cloud revenue channels - could generate sufficient future earnings. The scale of infrastructure spending across the technology sector is becoming increasingly difficult to ignore, with the intensifying AI arms race now relying on funding beyond current earnings. This points to a period of heightened volatility for the market leaders and growing pressure to deliver returns from ever-larger commitments to cloud and data centre expansion.
Another positive for markets came from the meeting between US President Trump and Chinese President Xi in South Korea, which concluded with a one-year trade truce. The agreement includes a rollback of tariffs, with the US halving some existing duties and reducing levies related to fentanyl precursor chemicals, whilst China has committed to halting new export controls on rare earth elements and other critical minerals. Beijing will also reopen agricultural and energy trading channels, including substantial purchases of US soybeans and Alaskan oil. Although these concessions offer both sides some breathing space, many long-term issues remain unresolved, making further negotiations inevitable once the truce expires.
Perhaps the news that Berkshire Hathaway is sitting on a record US$381.7 billion in cash should be taken as a note of caution for today’s equity markets. Over the past three years - spanning twelve consecutive quarters - Berkshire has consistently sold more equities than it has bought, choosing not to find value at prevailing valuations and refraining from share buybacks for five successive quarters. While succession planning may be a consideration, this stockpile of “dry powder” highlights how even the most experienced value investors are struggling to identify attractively priced opportunities as equity markets trade near historical highs. It also reflects the persistent uncertainty surrounding the economic outlook, which - alongside ongoing inflation risks, geopolitical
