Markets on Edge as Legal, Economic, and Valuation Risks Collide

Global markets opened the day with a mixed tone as investors weighed multiple crosscurrents: U.S. equity valuations flashing historical warning signs, an unprecedented surge in layoffs, uncertainty surrounding the legality of U.S. tariffs, and a loss of momentum in major technology shares. Together, these developments underscore a shifting investment landscape defined by economic deceleration, policy ambiguity, and market fatigue following months of exuberant gains.

1. Equity Markets: Valuations Test Euphoria

U.S. stocks continue to tread water after a 36% surge from April lows, leaving valuations stretched by several historical measures. The so-called Buffett Indicator — the ratio of total U.S. market capitalization to GDP — has surged beyond its pandemic-era peak, implying the market’s value now exceeds twice the size of the economy.

Barclays’ own options-based euphoria gauge echoes the same signal, showing investor sentiment near levels seen during the dot-com bubble and the meme-stock frenzy of 2021. While corporate earnings growth remains robust — third-quarter profits for S&P 500 firms are up nearly 13% year-on-year — the concentration of returns in large-cap technology remains a structural vulnerability. Analysts warn that any disappointment in high-multiple AI-linked names could trigger a sharp correction.

Despite this, earnings breadth has improved compared with earlier in the year, providing a partial cushion. Still, with equity valuations at historically elevated levels and indicators of speculative excess flashing red, investors are increasingly favoring tactical positioning and profit protection strategies.

2. Market Performance: Tech Caution Dominates

Trading across global markets was subdued as optimism from strong corporate results faded. S&P 500 and Nasdaq 100 futures were flat, while European stocks also hovered near unchanged levels.

Qualcomm’s upbeat earnings forecast failed to lift sentiment, sending its shares lower and reviving concerns about overstretched valuations in the semiconductor sector. Tesla shares were modestly higher ahead of a shareholder vote on Elon Musk’s record compensation plan, while other “Magnificent Seven” names traded mixed.

Corporate highlights included a sharp rise in Arm Holdings after a bullish AI-driven forecast, while Snap Inc. rallied on a $400 million partnership with Perplexity AI. In contrast, Duolingo Inc. slumped after weak results, and A.P. Moller-Maersk disappointed investors with a smaller-than-expected profit guidance upgrade — a telling sign of persistent global trade uncertainty.

In fixed income, U.S. Treasury yields slipped as traders priced in higher odds of a December rate cut following weak labor-market data. The dollar posted its steepest weekly decline in three weeks, while gold advanced to $4,008 an ounce, reflecting renewed safe-haven demand.

3. Labor Market: Job Cuts Surge to Two-Decade High

Fresh data from Challenger, Gray & Christmas revealed that U.S. companies announced 153,000 layoffs in October — nearly triple last year’s level and the highest for the month since 2003. Technology and warehousing firms led the reductions as artificial intelligence adoption and cost-cutting accelerated.

The cumulative 2025 layoffs have now surpassed one million, while hiring plans remain at their weakest since 2011. This points to a notable cooling in labor demand, contradicting recent Federal Reserve statements describing only a “gradual softening” in the job market.

Major corporations including Amazon, Meta, Target, and Paramount were among the largest contributors to October’s cuts. With consumer spending already under pressure and seasonal hiring at decade-lows, the data reinforce expectations that the U.S. economy is heading toward slower growth despite easing inflation.

4. Trade Policy: Supreme Court Challenges Trump’s Tariffs

Adding to market uncertainty, the U.S. Supreme Court signaled skepticism toward President Trump’s use of the 1977 International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs. Conservative justices questioned the breadth of executive authority, suggesting potential limits to unilateral trade actions.

A ruling against the administration could reduce the U.S. average effective tariff rate to 6.5% — its lowest level since before the April “Liberation Day” tariff announcement — and potentially shave up to 1.1 percentage points off the estimated GDP drag from current duties. However, such a decision would also raise questions about refunding billions in tariff revenues and complicate ongoing trade talks with China, the EU, and other partners.

While Treasury Secretary Scott Bessent expressed optimism about the case, businesses remain wary. Many small importers, already strained by months of elevated duties, warn that any relief may come too late to reverse layoffs and price increases. The broader takeaway is clear: uncertainty over U.S. trade policy remains a key overhang on corporate planning and global supply chains.

5. Outlook and Market Implications

The convergence of stretched valuations, weakening labor data, and policy uncertainty paints a complex macro backdrop. On one hand, expectations of an imminent rate cut support risk sentiment; on the other, structural economic headwinds — including slower job creation, fading fiscal support, and potential tariff-related disruptions — argue for caution.

Short-term volatility is likely to persist as investors recalibrate to the dual narrative of decelerating growth and lingering inflation risks. While liquidity conditions remain accommodative, the combination of euphoric equity pricing and weakening fundamental momentum suggests that markets are entering a late-cycle phase where selectivity and defensive allocation become increasingly critical.

Conclusion

Global markets are approaching a pivotal inflection point. With U.S. equities testing valuation extremes, job cuts accelerating, and trade policy facing judicial scrutiny, investors are confronting a shift from momentum-driven optimism to macro-driven realism.
In this environment, a disciplined approach emphasizing earnings quality, liquidity awareness, and sector diversification will be essential to navigate the remainder of 2025.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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