3rd Quarter 2025 Market update

I hope this update finds you well. With the night’s drawing in and the end of the year now on most people’s minds, it’s that familiar time when Bake Off and Strictly return to our screens- clear signs that the run-up to Christmas has begun.

I’ve already seen Christmas items in the shops for a few weeks now, which suggests retailers are keen to get as much out of our pockets as early as possible!

With a much-anticipated Budget due on 26 November, we’ll provide an update once the dust has settled and the finer details are clearer.

Set out below is our look back at the last quarter, which saw strong returns across the board. As always, please don’t hesitate to get in touch if you have any questions.

The third quarter of 2025 was a strong one for investors. Markets rose across the board, driven by enthusiasm for artificial intelligence (AI) and technology, solid company results, and a long-anticipated interest rate cut by the US Federal Reserve. A softer US dollar supported emerging markets, while gold and silver both reached record highs.

Global Shares

Global equities rallied during the quarter, with both developed and emerging markets delivering impressive returns. The ongoing AI boom, healthy corporate earnings, and the US rate cut all helped lift sentiment. A weaker US dollar gave an extra boost to emerging markets.

Although trade tensions eased, some uncertainty remains. Many companies continue to adjust supply chains to reduce reliance on the US and China. While valuations are high and inflation remains sticky, overall market confidence stayed firm through the quarter.

US

US shares hit new highs, with both the S&P 500 and Nasdaq reaching record levels. Technology and communications led the gains, helped by excitement around AI. Healthcare and energy were the weaker spots, partly due to falling oil prices.

The US economy continued to show strength – GDP expanded at an annualised rate of 3.8% in the second quarter, backed by steady consumer spending and moderate inflation. Optimism about the Fed’s September rate cut supported risk appetite, though political wrangling over the federal budget added a note of caution.

Europe

European shares rose too, helped by strong earnings in the financial and healthcare sectors. Bank stocks in particular performed well. The services sector grew across much of the region, with Germany, Italy, and Spain seeing positive momentum, although France lagged due to political uncertainty.

Inflation has now eased back towards the European Central Bank’s 2% target. President Lagarde noted that inflation risks are more balanced and that the economy has weathered US tariffs better than expected. On the political side, French Prime Minister François Bayrou stepped down after failing to secure support for his fiscal reforms.

UK

UK markets enjoyed their best quarter since late 2022. The FTSE 100 was helped by global growth, a weaker pound, and strength in AI-related technology and communications companies. Higher gold prices supported basic materials, and the London Stock Exchange saw renewed activity in initial public offerings.

Inflation stayed stubborn at 3.8% in August. The Bank of England made a cut of 0.25% in August to 4% but held rates steady in September. It also signalled a slower pace of balance sheet reduction, which could help ease borrowing costs.

Japan

Japanese shares surged, with the TOPIX and Nikkei 225 both reaching record highs. Gains were led by sectors tied to global AI demand – semiconductors, metals, and energy. Corporate buybacks and rising dividends reflected ongoing governance reforms and helped maintain investor confidence.

Although currency swings created occasional volatility, optimism about company earnings and continued reform momentum remained strong.

Emerging Markets

Emerging markets outperformed developed markets, buoyed by AI enthusiasm, a weaker US dollar, and the Fed’s rate cut. China, Taiwan, and Korea led the gains, while Egypt, Peru, and South Africa also posted standout performances.

China benefited from progress in trade talks with the US and policy measures aimed at improving productivity. South Africa was helped by stronger precious-metal prices, while Taiwan and Korea gained from demand for technology and memory chips.

Brazil and India lagged, with India affected by new US tariffs on pharmaceutical exports.

Asia (ex-Japan)

Asia Pacific markets delivered strong gains, particularly in North Asia. Korea and Taiwan were again leaders thanks to AI-driven tech demand. China also rose on strong capital inflows and government backing for semiconductor investment.

Elsewhere, India and Southeast Asian markets were more subdued, weighed down by tariff pressures and limited non-tech growth. The Fed’s rate cut, and solid global liquidity helped support the region overall.

Bonds

Bond markets were mixed. US Treasury yields fell after the Fed’s September rate cut, while UK, German, and Japanese yields edged higher.

In the US, the yield curve initially steepened amid worries over central bank independence, but it flattened again after the rate cut reassured investors. In Europe, yields rose slightly as tariff uncertainty eased, and fiscal spending picked up. France underperformed due to political changes and a credit-rating downgrade.

UK gilt yields rose modestly, with the Bank of England’s rate cut seen as the start of a gradual easing cycle. Japan’s government bonds weakened slightly amid political pressure for higher public spending, but the Bank of Japan kept its key rate unchanged at 0.5%.

Corporate bonds had another good quarter, with both investment-grade and high-yield markets performing well. Investors continued to favour credit for its relatively attractive income potential.

Commodities

Commodities were mixed overall, but precious metals stole the spotlight. Gold and silver surged to record highs, supported by strong investor demand and geopolitical uncertainty. Energy prices were broadly flat, while industrial metals saw modest gains.

Looking Ahead

As we move into the final quarter of the year, the outlook remains cautiously positive. AI and technology continue to drive global growth, inflation pressures are easing, and central banks are slowly shifting towards lower interest rates.

While political and trade uncertainties haven’t disappeared, markets have shown resilience. For investors, this underlines the value of staying diversified and maintaining a long-term perspective amid the noise of short-term market moves.