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Market Insight | September 2025

Resilient Markets Amid Mixed Signals

The third quarter of 2025 was another strong period for global markets, as equities continued to rise despite persistent economic and political headwinds. Investor enthusiasm for Artificial Intelligence (AI) continues to fuel optimism, while the Federal Reserve’s (Fed) first interest rate cut in over a year provided an additional boost. However, not all indicators are positive: slowing job growth in the US, mounting political pressure on central banks, and stretched valuations underscore that risks persist alongside opportunities.

Global Growth Loses Momentum

The world economy is slowing, with growth projected at around 2.5% this year – the weakest since the pandemic downturn. The US has shown resilience in consumer spending, especially among wealthier households, but job creation is weakening, and manufacturing has been contracting for several months. Inflation has eased but remains above target, prompting the Fed to cut rates to 4% and signal further reductions later this year.

Uneven Growth Across Major Economies

In Europe, growth is flat, and new US tariffs are weighing on exporters, particularly in industrial and healthcare sectors. The UK economy has been stronger than expected, growing 1.1% in the first half of the year, but concerns about government borrowing have unsettled the gilt market. China continues to target 5% growth, but activity remains patchy. India is showing strong momentum with record manufacturing and services activity.

Equities Rally on AI Optimism

Equities drove markets higher in Q3, with many global indices reaching new all-time highs. Global equities gained more than 7.5% in the third quarter, led by Japan’s markets, which surged 13.0%. US stocks rose more than 8%, driven by technology mega-caps that are investing heavily in AI. Emerging markets surged, with China benefiting from state support for its tech sector and India from robust domestic demand. Europe gained more modestly, constrained by tariffs and weakness in healthcare. UK equities continue to lag longer-term, reflecting weaker corporate profit growth compared to US peers. AI remains the dominant theme, but much of the performance has been concentrated in a small group of large companies, leaving markets vulnerable if earnings fail to meet expectations.

Mixed Performance Across Bonds and Commodities

Government bonds had a mixed quarter. US Treasuries rallied as rate cuts took hold, but UK gilts fell sharply on fiscal worries. Credit markets remain expensive, with spreads near historic lows, offering limited protection if growth slows. Commodities diverged; oil prices slipped on weaker demand expectations, while gold surged on safe-haven demand and concerns about central bank independence.

Balancing Opportunity and Risk in a Shifting Market Landscape

Markets remain supported by optimism around AI and looser monetary policy, but vulnerabilities are clear. Slower global growth, political risk, and stretched valuations could trigger bouts of volatility. We continue to believe that the best approach is disciplined diversification – balancing exposure to long-term growth opportunities such as AI with defensive assets and alternative sources of return. This helps protect portfolios while still capturing the upside from innovation and economic recovery.

Important Note

The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.

This article is distributed for educational purposes only. This communication does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs.

The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.

Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

 

Past performance is no guarantee of future performance.

The value of an investment and the income from it can fall as well as rise and investors may get back less than they invested. Your capital is therefore always at risk. It should be noted that stock market investing is intended for the longer term.

Meet the expert
Craig Melling
Craig Melling 650×650
Director of Investment

Craig joined Progeny Asset Management as a founding member in 2016. He specialises in private client asset management and monitors a wide range of asset classes, with a particular interest in smaller companies. During his career he has managed a variety of client accounts, including charities, pensions, trusts and private client portfolios.

Craig sits on the internal investment committee and has been instrumental in the development of the selection process and strategy of Progeny Asset Management. He frequently presents his strategy and thoughts on wider financial markets and provides media commentary on a variety of different topics. He has established relationships with various company management teams, partaking in regular update meetings and attending site visits.

Away from the office, Craig enjoys spending time with his wife and two children, whilst his second love is the trials and tribulations of Leeds United.

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