Q3 2025
The third quarter was dominated by policy brinkmanship and a late-September pivot from the Fed. After weeks of speculation the Fed cut rates by 25 bps in September, framing it as cautious insurance against a softening labour market rather than the start of a rapid easing cycle. Markets had half-priced this outcome and took it in their stride. The US government shut downs means September data will not be available. Gold hit an all time high taking its surge to 50% this year. Fund flows data showed a slight rotation from equities into bonds and cash.
Equities climbed the wall of worry. Global stocks finished the quarter solidly higher, a tech-led advance that pushed several big indices to fresh high, while investors continued to debate how much AI enthusiasm is already in the price. Style leadership stayed narrow (mega-cap growth to the fore), but breadth improved at the margin. Mega-cap technology stocks remain the key beneficiaries of this build out phase with their unmatched resources and technological expertise. They are dominating in cloud infrastructure, chips and data management systems but opportunities are emerging in other sectors like energy, industrials and utilities.
Fixed income delivered mixed results; front-end yields faded after the Fed move and the all-in yield on quality credit kept demand strong. Credit spreads tightened modestly, suggesting strong corporate fundamentals, leaving sterling investment-grade attractive as a funding source for 4% spending rates.
Geopolitics and trade both continue to be dominant themes. Tariff talk waxed and waned through the quarter; markets cheered any hint of de-escalation but kept one eye on inflation pass-through if barriers rise again. Corporate earnings held up better than feared, yet the buy-side narrative settled into a more cautious tone.
In July, HM Treasury scrapped the UK Green Taxonomy, signalling a pivot toward transition-plan reporting rather than activity lists, this is useful for engagement, but it removes a tidy classification tool many hoped to adopt. Meanwhile the FCA’s Sustainability Disclosure Requirements (SDR) bedded in: the anti-greenwashing rule is live and enforceable, labels and disclosures are phasing in, raising the bar on how managers market “sustainable” strategies to charity clients. Trustees should ensure any labelled funds in the portfolio can evidence their claims and that managers’ client communications meet the “fair, clear, not misleading” test.
Equities have momentum, but leadership remains narrow and sentiment fragile. The Bank of England and James Dimon have both sounded the warning bell on US markets. Quality investment grade credit remains a credible income source at current yields provided the duration matches cash flow timing.