Introduction
The third quarter was a strong period for risk assets, with global markets broadly posting decent gains. Investor sentiment was boosted by easing trade tensions, continued enthusiasm over Artificial Intelligence (AI) and technology-related stocks and growing expectations over US Federal Reserve interest rate cuts. There was further support from strong corporate earnings updates, whilst the weaker US dollar benefited Emerging Markets in particular. Although equity markets posted gains, there were still periods of volatility amid persistent inflation, especially in the UK and the US, and ongoing geopolitical tensions.
From an economic point of view, at its August meeting the Bank of England (BoE) reduced its interest rate by 0.25% to 4%, although the vote split was much tighter than expected and it required an unprecedented two rounds of voting to reach the decision. Furthermore, at the following September meeting, the BoE Governor noted that the UK was “not out of the woods” on inflation, with any future cuts needing to be made gradually and carefully. This was evidenced by UK headline inflation of 3.8%, well above the 2% target and the highest among major advanced economies. UK economic growth slowed in the second quarter to 0.3% from its strong expansion of 0.7% in the opening three months of the year. The US Federal Reserve lowered its interest rate by 0.25% to the 4%-4.25% range, its first cut since December, whilst indicating further reductions would follow later this year. The US economy rebounded strongly in the second quarter from its contraction in the first three months of 2025. The European Central Bank maintained its interest rate at 2%, whilst retaining its positive view on economic growth and inflation.
Market Performance
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK Equities
UK equities rose in the third quarter, with the FTSE 100 recording its strongest quarterly return since late-2022 as it outperformed the mid cap FTSE 250. The resilient global economy provided support to the FTSE 100, where the majority of revenues are derived from overseas, whilst the weaker sterling benefited internationally focused companies. The higher gold price contributed to a rally in mining stocks, whilst AI enthusiasm helped the communication and technology sectors.
Global Equities
The US S&P 500 (which measures 500 of the largest US companies) delivered a robust gain, including a new record high. Optimism over the September interest rate cut, as well as expections over further reductions, supported investor sentiment as did robust corporate earnings updates. Enthusiasm over AI boosted technology and communications stocks in particular, which were among the strongest performers. The FTSE World Europe ex UK Index (which measures large and mid cap stocks across Europe) rose, but underperformed other developed markets. German equities were the main drag on overall European performance as the market suffered a small loss, whilst France posted a gain despite political instability. The strongest performing sectors were financials and healthcare. The Japanese Nikkei 225 Index (a measure of Japan’s top 225 companies) produced a very strong gain, including a record high, with sentiment boosted by the US interest rate cut and positive domestic political developments. The US-Japan trade deal and a weaker yen were also supportive of performance.
Asia and Global Emerging Markets Equities
Asian and Global Emerging Markets outperformed as they rose strongly in the third quarter, amid easing trade tensions with the US and optimism over China’s ‘anti-involution’ policy, which is a set of reforms aimed at reducing unhealthy competition with the objective of creating a more sustainable and equitable society. The weaker US dollar also supported selected regional markets. The broad MSCI Asia ex Japan Index (which captures the performance of over 1,000 companies across Asia) posted a very strong double-digit gain, led by China and notably their biggest tech names, as well as Taiwan, which again benefited from its dominant tech sector. India was a notable underperformer in the third quarter. Global Emerging Markets, as demonstrated by the broad MSCI Emerging Markets Index (which covers over 1,200 stocks from across 24 emerging markets countries) also recorded a robust positive return.
Fixed Income
There was mixed performance from global government bonds in the third quarter, with the US rising amid signs of a weakening labour market and optimism over rate cuts. However, the UK, as shown by the loss for the FTSE Actuaries UK Conventional Gilts Index, and the Eurozone saw rising yields (bond prices and yields have an inverse relationship). The fall in the gilt index was despite the Bank of England reducing its interest rate, as the central bank continued to note its gradual approach to easing monetary policy, whilst the UK’s weak fiscal position and sticky inflation remained in the spotlight.
Afp198 exp10/26
Home > Market Commentary – Quarter 3, 2025
Market Commentary – Quarter 3, 2025
Introduction
The third quarter was a strong period for risk assets, with global markets broadly posting decent gains. Investor sentiment was boosted by easing trade tensions, continued enthusiasm over Artificial Intelligence (AI) and technology-related stocks and growing expectations over US Federal Reserve interest rate cuts. There was further support from strong corporate earnings updates, whilst the weaker US dollar benefited Emerging Markets in particular. Although equity markets posted gains, there were still periods of volatility amid persistent inflation, especially in the UK and the US, and ongoing geopolitical tensions.
From an economic point of view, at its August meeting the Bank of England (BoE) reduced its interest rate by 0.25% to 4%, although the vote split was much tighter than expected and it required an unprecedented two rounds of voting to reach the decision. Furthermore, at the following September meeting, the BoE Governor noted that the UK was “not out of the woods” on inflation, with any future cuts needing to be made gradually and carefully. This was evidenced by UK headline inflation of 3.8%, well above the 2% target and the highest among major advanced economies. UK economic growth slowed in the second quarter to 0.3% from its strong expansion of 0.7% in the opening three months of the year. The US Federal Reserve lowered its interest rate by 0.25% to the 4%-4.25% range, its first cut since December, whilst indicating further reductions would follow later this year. The US economy rebounded strongly in the second quarter from its contraction in the first three months of 2025. The European Central Bank maintained its interest rate at 2%, whilst retaining its positive view on economic growth and inflation.
Market Performance
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK Equities
UK equities rose in the third quarter, with the FTSE 100 recording its strongest quarterly return since late-2022 as it outperformed the mid cap FTSE 250. The resilient global economy provided support to the FTSE 100, where the majority of revenues are derived from overseas, whilst the weaker sterling benefited internationally focused companies. The higher gold price contributed to a rally in mining stocks, whilst AI enthusiasm helped the communication and technology sectors.
Global Equities
The US S&P 500 (which measures 500 of the largest US companies) delivered a robust gain, including a new record high. Optimism over the September interest rate cut, as well as expections over further reductions, supported investor sentiment as did robust corporate earnings updates. Enthusiasm over AI boosted technology and communications stocks in particular, which were among the strongest performers. The FTSE World Europe ex UK Index (which measures large and mid cap stocks across Europe) rose, but underperformed other developed markets. German equities were the main drag on overall European performance as the market suffered a small loss, whilst France posted a gain despite political instability. The strongest performing sectors were financials and healthcare. The Japanese Nikkei 225 Index (a measure of Japan’s top 225 companies) produced a very strong gain, including a record high, with sentiment boosted by the US interest rate cut and positive domestic political developments. The US-Japan trade deal and a weaker yen were also supportive of performance.
Asia and Global Emerging Markets Equities
Asian and Global Emerging Markets outperformed as they rose strongly in the third quarter, amid easing trade tensions with the US and optimism over China’s ‘anti-involution’ policy, which is a set of reforms aimed at reducing unhealthy competition with the objective of creating a more sustainable and equitable society. The weaker US dollar also supported selected regional markets. The broad MSCI Asia ex Japan Index (which captures the performance of over 1,000 companies across Asia) posted a very strong double-digit gain, led by China and notably their biggest tech names, as well as Taiwan, which again benefited from its dominant tech sector. India was a notable underperformer in the third quarter. Global Emerging Markets, as demonstrated by the broad MSCI Emerging Markets Index (which covers over 1,200 stocks from across 24 emerging markets countries) also recorded a robust positive return.
Fixed Income
There was mixed performance from global government bonds in the third quarter, with the US rising amid signs of a weakening labour market and optimism over rate cuts. However, the UK, as shown by the loss for the FTSE Actuaries UK Conventional Gilts Index, and the Eurozone saw rising yields (bond prices and yields have an inverse relationship). The fall in the gilt index was despite the Bank of England reducing its interest rate, as the central bank continued to note its gradual approach to easing monetary policy, whilst the UK’s weak fiscal position and sticky inflation remained in the spotlight.
Afp198 exp10/26
Related News & Insights
Multi-manager funds: A smarter route to diversified investing
Autumn financial check-up: Five smart moves
November 2025 Budget: What can we expect?
Market Commentary – Quarter 2, 2025
Share our advice, share your rewards!
That’s summer sorted! Five smart financial moves for the sunny season
Planning for a secure retirement: Insights and Tips
Make the most of your new tax year allowances