Subscribe
Share
Share
Embed
The Mearns & Company Monday Espresso is your essential five-minute investment briefing, equipping you with everything you need to know for the week ahead. Marlborough's Multi-Asset Solutions Investment Team summarise market events over the past seven days and preview the key events in the week ahead, while also sharing their expert insights.
Monday Espresso Podcast - 15th December 2025
[00:00:00] Rory Dowie: Welcome to the Monday Espresso Podcast. Today's Monday the 15th of December. I'm Rory Dowie, Portfolio Manager here at Marlborough. We've had the final Federal Reserve meeting of the year, Tech Giants stumbling on earnings, and investors are starting to ask some hard questions about the cost of AI. Joining me to unpack what some of this means is our Investment Analyst, Andrew Shaw.
[00:00:20] Rory Dowie: Andrew, firstly, good morning.
[00:00:22] Andrew Shaw: Morning, Rory.
[00:00:23] Rory Dowie: We've got lots to get through, I suppose. Let's get straight to it. Firstly, how did markets get on last week, Andrew?
[00:00:29] Andrew Shaw: It was an okay week for markets last week. Europe was the strongest major region finishing just up over 1%. Japan and the UK were up about 70 basis points and the US just a little bit lower than that. Whilst the return numbers were fairly muted, we did actually reach an all time high on global stock markets last week, and so far in December, the US is at 1% Europe, 2% Japan, 3%. The UK is just lagging a little bit with just 30 basis points up for the month.
[00:00:57] Rory Dowie: So I guess markets so far so good.
[00:00:59] Rory Dowie: Then in December, we had a lot going on last week. Maybe let's start with the Federal Reserve in the US and that interest rate decision. What was the latest there?
[00:01:07] Andrew Shaw: Yeah, on Wednesday last week, they cut interest rates by another quarter of percentage points, not 0.25%, and that brought the target range interest rates down to between 3.5 and 3.75%. On the surface that sounds like good news, borrows getting cheaper and markets did take it positively. Broadly rising a little bit on the news, the headline is that 25 basis point reduction, but the real story was the vote itself. It was actually a split decision, nine to three.
[00:01:38] Rory Dowie: Three dissenters. That's actually quite rare for the Federal Reserve, isn't it? Usually they like to present quite a united front.
[00:01:43] Andrew Shaw: Yeah. We haven't seen this much internal disagreement in years. And you had one member pushing for a bigger cut and two arguing to hold rates steady.
[00:01:52] Rory Dowie: So suppose what does that tell us as investors?
[00:01:54] Andrew Shaw: It tells us the Fed's in a bit of a sticky situation, that they're trying to balance two opposing risks. On one hand, the labour market is showing cracks, hiring is slowing. Which argues for faster cuts. And then on the other hand, inflation is proving sticky. It's not falling as fast as they like. And so the wobbly market reaction you mentioned came because investors realise the easy part's over, the Fed isn't on autopilot anymore.
[00:02:22] Andrew Shaw: And they're signaling that future rate cuts in 2026 will likely be slower and more data dependent than we hoped.
[00:02:29] Rory Dowie: Yeah. So again, still in that tricky place. We've been speaking about that for a little while, the sort of tug of war between inflation on one side and the economy on the other, I suppose moving on, let's pivot to the other big story in the week. Technology, hard not to talk about these days. Specifically Oracle, you know, one of the darlings of the AI trades, they reported earnings on Wednesday and actually fell 11%. Andrew, I guess why the sudden cold shoulder from investors, you know, why was the stock market reaction quite negative there?
[00:02:54] Andrew Shaw: Yeah, this is what I'm gonna call the show me the money phase of the AI boom. Forgive me for not doing my Tom Cruise impression. For the last year, companies like Oracle have been spending billions or literally billions on building data centers and buying chips to power artificial intelligence.
[00:03:11] Andrew Shaw: Investors were happy to fund that 'cause of the promise of future growth.
[00:03:15] Rory Dowie: And I guess this week maybe that patience ran out somewhat.
[00:03:18] Andrew Shaw: It's hit a bit of a wall. Oracle's earning showed that while the cloud business is growing, it missed revenue expectations. Essentially, they're spending massive amounts on CapEx or capital expenditure, but the revenue fund in those investments isn't flowing through in fast enough to justify the stock's high price.
[00:03:35] Andrew Shaw: On top of that, they increased their capital expenditure guidance for 2026 by $15 billion, so they're gonna be spending even more, which may erode profitability if those revenues don't keep up with the spend.
[00:03:49] Rory Dowie: So I guess it's kind of like building a massive factory, but only selling a few cars in the first month.
[00:03:54] Rory Dowie: We're gonna kind of put that in layman's terms, but actually we need to see that there's gonna be future demand for those cars, basically. And I guess that's ultimately the question. They're spending all this money, you know, when are they gonna get return on that investment? I suppose this time round the market looked at those numbers and said.
[00:04:08] Rory Dowie: We believe in AI, but we really need to start seeing some of those returns. And I think you're certainly seeing that in the market, investors are getting more sensitive to that kind of return story on this spend. So I guess more broadly, obviously we've spoken about a bubble over the last few weeks and months and there's been a kind of debate in the community, I suppose, does this mean the AI trade is over?
[00:04:26] Rory Dowie: Should investors be worried about their tech holdings?
[00:04:29] Andrew Shaw: Not over, but it's becoming more selective, which in our view is only a good thing Bubbles in markets are periods of irrational exuberance. And so the fact that the market has been selected now means that the irrational part of the bubble definition is actually missing.
[00:04:46] Andrew Shaw: And so the lesson here is that simply saying AI isn't a magic password for your stock price anymore, and companies now have to prove the return on investment. And if they can't, the market will punish them, which is exactly what we saw with Oracle last week.
[00:05:00] Rory Dowie: Yeah, I think that's a really important distinction there, Andrew.
[00:05:02] Rory Dowie: I guess execution matters more than hype now, so you can't just say the word AI. You kinda have to prove that there's some, you know, tangible return on that investment. Before we let you go, Andrew, looking ahead this week, obviously we're moving from the Feds last week to the rest of the world. What should our listeners be looking out for on the economic calendar?
[00:05:20] Andrew Shaw: Going to be Central Bank super week part two. First up, we've got the ECB or the European Central Bank. They're meeting on Wednesday and Thursday. Eurozone economy is looking fragile and so markets will be coursely watching to see if they cut rates against stimulate growth.
[00:05:35] Rory Dowie: And a little bit closer to home?
[00:05:37] Andrew Shaw: Yeah, the Bank of England meets on Thursday, December the 19th. Markets are currently pricing in a high probability, and that's around 85% over cut down to 3.75%. In UK inflation looking better, but growth is stalling. We saw last week that there was a, actually a negative GDP print of 0.1% for October, and so there's a lot of pressure on them to act.
[00:06:01] Andrew Shaw: And then finally we will keep an eye on US retail sales on Wednesday after the Fed's split the decision. This data will tell us some insight into the American consumer.
[00:06:11] Rory Dowie: Andrew. Brilliant. Thanks very much for joining. To our listeners we hope you found that useful. We will be back next week for the last time before Christmas.
[00:06:18] Rory Dowie: And until then, wishing you a great week ahead.