Q3 2025 Global Market Review and Perspective

Written by Shan Gao

The quarter in summary:

The third quarter of 2025 delivered broad-based gains across global equity and fixed income markets as investors looked beyond persistent policy uncertainties to focus on resilient economic data and continued technology-driven optimism. Q3 began with markets digesting the aftershocks of earlier tariffs and evolving central bank guidance. Equities extended their recovery from the spring sell-off, supported by hints of imminent Fed easing and ongoing policy stimulus in various regions. For fixed income, the performance was mixed during Q3, with US Treasury yields ending the quarter lower, while UK, German, and Japanese yields all rose over the period.

Global Macro:

Central bank decisions played a key role in shaping market dynamics during Q3. The Federal Reserve restarted its long-anticipated rate-cutting cycle in September, lowering its benchmark rate by 25 basis points—a widely expected move amid a cooling labour market and modest inflationary pressures. In contrast, the European Central Bank held rates steady at 2.0%, signalling near-term caution after two cuts earlier in the year, with a balanced view on growth and inflation risks across the Eurozone. Similarly, the Bank of England implemented its first rate cut since 2020, lowering rates to 4.0% in August, signalling a gradual easing approach.  By quarter-end, trade tensions eased as negotiations progressed and retaliatory threats diminished, supporting a rotation into international equities and emerging market assets. However, President Donald Trump threatened fresh tariffs on China over its latest controls on rare earth exports and said the planned meeting with Chinese President Xi Jinping was now uncertain.  While this year so far, the market and economy has adapted well to higher tariffs, and progress was made on several fronts, but the risk of further trade disruptions remains significant.

Additionally, the U.S. federal government shutdown on 1^st October – due to Congress failing to pass appropriations legislation for the 2026 fiscal year – introduced fresh uncertainty. At the time of writing, the shutdown is in its second week, with growing impacts on federal employees, government services, and delayed economic data releases.

Equity Market:

Global equities delivered strong performance in Q3, with S&P 500 and Nasdaq Composite recorded their best third quarter since 2020. The gains were primarily supported by solid corporate earnings, continued enthusiasm for AI and a rate cut by the Fed in September (with expectations of more easing ahead).

While globally stocks were up, US equities outperformed other developed markets but lagged behind emerging markets, which posted double-digit gains in Q3 on hopes for improved US-China relations and targeted stimulus in China.

From factor perspective, Growth stocks once again outperformed value (MSCI All Country World Growth: +9.0% in Q3), fuelled by investor appetite for AI-related themes, as stretched valuations became a growing topic of discussion. Value stocks lagged but also delivered solid gains (MSCI All Country World Value: +6.1% in Q3). Small-cap stocks (MSCI All Country World Small: +8.1% in Q3) kept pace with large caps (MSCI All Country World Large: +8.1% in Q3).

Fixed Income Market:

In fixed income markets, the performance of government bond markets was mixed during Q3. US Treasury yields climbed toward cycle highs in July but dropped sharply by September and ended lower due to the Fed’s rate cut. Contrary to the US market, UK gilt yields rose notably in Q3 2025, with 30-year gilt yields reaching levels not seen since the late 1990s. This increase was driven by persistent inflation concerns, fiscal uncertainties, and scrutiny over the sustainability of government finances. The UK gilt yield curve steepened moderately during Q3 as markets balanced inflation risks against expectations for slower growth and limited near-term rate cuts. Eurozone yields also ended higher, supported by easing tariff concerns (as a baseline 15% tariff rate was agreed for nearly all EU goods entering the US) and Germany’s increased domestic fiscal spending on infrastructure and defence.

It was a positive quarter for credit markets with US credit spreads tightening to multi-decade lows. Government bonds (FTSE WGBI 1-5 Yr Hedged USD: +1.0% in Q3) underperformed high-yield bonds (ICE BofA 0-5Y US HY Constrained TR USD: +2.2% in Q3).

Summary, Outlook and Investment Considerations

Global markets demonstrated resilience and strong risk appetite in the third quarter of 2025. This was driven by a mix of AI optimism, easing trade tensions, and central banks with more supportive (or less restrictive) policies. While volatility has increased heading into Q4, driven by fresh trade policy uncertainties, such fluctuations are a normal part of market cycles.

While concerns around credit quality have recently emerged – particularly in private markets – there is currently no indication of systemic risk. Defaults remain contained, and despite isolated stress among some US regional banks, the broader economy continues to show strength. Earnings growth remains solid, and corporate fundamentals are resilient. Although parts of the equity market appear expensive, the long-term outlook remains constructive. Supportive factors such as anticipated Federal Reserve rate cuts, resilient corporate earnings growth, and accommodative fiscal policies suggest a solid fundamental backdrop as we head into 2026.

At MASECO, we continue to advocate for a globally diversified multi-asset portfolio. Strategic tilts and disciplined rebalancing help investors navigate short-term volatility while staying aligned with their long-term investment goals.

Source: All index data from Bloomberg as of 30 September 2025, unless otherwise stated. See end of report for further information. Please note any past performance mentioned is not a guide to future performance and may not be repeated.

Notes:

MSCI All Country World Index is a market capitalization weighted index that measures the performance of large and mid-cap stocks across 23 Developed Markets and 24 Emerging Markets (EM) countries.

MSCI All Country World Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Large Cap Index captures large cap representation across 23 Developed Markets and 24 Emerging Markets countries.

MSCI All Country World Small Cap Index captures small cap representation across 23 Developed Markets and 24 Emerging Markets countries.

MSCI World ex USA Value Index measures the performance of value-style large and mid-cap securities in Developed Markets, excluding the United States.

MSCI World ex USA Growth Index measures the performance of growth-style large and mid-cap securities in Developed Markets, excluding the United States.

MSCI Emerging Market Value Index captures value-style large and mid-cap securities in 24 Emerging Markets.

MSCI Emerging Markets Growth Index captures growth-style large and mid-cap securities in 24 Emerging Markets.

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