Q3 Market Update: Beyond the headlines

Senior Investment Specialist, Rebecca Cretney, shares market highlights for Q3 2025, including what really lies beyond the noise of the headlines.

Q3 2025 Market Commentary: a comprehensive breakdown of Q3 investment markets from our colleagues at Nedgroup Investments.

The third quarter of 2025 delivered broadly positive returns across global equities and bonds, defying lingering concerns around tariffs and fiscal instability. While the quarter began under the shadow of escalating trade tensions, a dovish pivot from the Federal Reserve helped drive risk assets higher.

Markets entered Q3 still digesting the implications of the sweeping tariff programme announced in April. The original 90-day extension deadline loomed large in early July, but was ultimately pushed back to 1 August. President Trump’s subsequent letters to trading partners outlined revised tariff rates, 15% for the EU and Japan, less severe than feared, but still above the 10% baseline. Canada saw its rate on non-USMCA goods rise to 35%, while sector-specific tariffs added further complexity: copper imports faced a 50% levy from August, and branded pharmaceuticals were hit with a 100% tariff effective 1 October.

Labour market data in the US weakened notably over the quarter. July’s jobs report revealed significant downward revisions to prior months, totalling -258k, the largest since the pandemic-era recalibrations of May 2020. August payrolls disappointed further, rising just +22k, while unemployment ticked up to 4.3%, its highest since late 2021. In response, the Federal Reserve pivoted decisively. Chair Powell’s Jackson Hole remarks acknowledged growing labour market fragility, and the Fed delivered its first rate cut of the year in September, lowering the federal funds target range to 4.00–4.25%. Forward guidance signalled another 50bps of easing by year-end, providing a tailwind for risk assets as well as treasuries and gold.

Elsewhere, central banks were less active. The ECB held rates steady at 2%, and the Bank of Japan maintained its 0.5% policy rate while announcing plans to unwind ETF and J-REIT holdings. Geopolitical tensions briefly flared mid-August amid speculation of a Ukraine ceasefire following meetings between President Trump, President Putin, and European leaders. However, no agreement was reached, and markets largely shrugged off the headlines.

Finally, fiscal stability came into question over the quarter particularly in France. Prime Minister Bayrou’s loss of a confidence vote and Fitch’s downgrade of France’s sovereign rating from AA- to A+ put pressure on French yields, which had some spill over to Germany and the UK who saw similar moves. In the US, long-end Treasuries remained more stable however, political interference resurfaced, as President Trump dismissed Fed Governor Lisa Cook, raising concerns over Federal Reserve independence.

How has this translated to financial markets?

Given this backdrop, equities were well supported, with the global index up by +8.0%, with Asia Ex-Japan (+12.8%) and Emerging Markets (+12.2%) leading the way, whilst Europe ex-UK (+3.9%) lagged. In terms of equity styles, growth stocks (+9.0%) outperformed value (+6.3%), and small-cap stocks (+8.2%) were in line with large caps (+8.0%). There was wide variation in sector performance, with IT (+12.8%) and Communication Services (+11.9%) being the strongest two sectors, while Consumer Staples (-1.6%) and Real Estate (+2.0%) lagged significantly.

Fixed income markets were positive supported by high starting yields. Looking at the details, global government bonds (+0.7%) finished the quarter above water, but lagged Investment Grade Credit (+2.2%), Global High Yield (+2.4%) and global emerging market debt (+4.4%).

In the real assets space, global real estate (+4.4%) and global infrastructure (+2.7%) were well bid, but lagged equity markets. Finally, Commodities (+3.6%) had a reasonable quarter with Gold (+16.4%) being a clear stand out, supported be geopolitical tensions and purchases from central banks.