Markets had a strong quarter with major equity benchmarks reaching new highs, led by growth across many sectors as well as the continued surge in AI stocks. Emerging markets continued to perform well, in no small part due to a rebound in China. Government policy also played a role, with the expectation of rate cuts in the US, and further easing of trade tensions leading to a boost in investor confidence.
Market Performance
Equities
- Emerging markets were the standout over the quarter, in most cases significantly outperforming developed regions. The MSCI Emerging Markets index rose by c10%, largely led by China with strong gains also seen in South Korea, Taiwan and some regions of Latin America.
- Markets showed more modest gains in Europe, with returns of between c3% and 4%. Although benefitting from easing inflation, weak German equities dragged on performance.
- In the US, both the S&P 500 and Russell 3000 saw gains of approximately 8% with the NASDAQ showing the strongest performance of c11%.
- UK equities saw stronger performance than Q2, with the FTSE All-Share up c6.9% and the FTSE 100 experiencing its best quarter since late 2022.
- Japan’s equity markets also performed strongly, with the Nikkei 225 up c11%.
Bonds & Fixed Income
- The 5-year yield on US Bonds fell 23 bps to ~3.74%.
- The 10-year yield saw a slight decrease of ~8 bps ending the quarter around 4.15%.
- The 10-year yield on UK Gilts saw a small rise of ~4 bps, ending near ~4.73%.
- During the quarter the UK’s 30-year gilt reached its highest level since 1998 at ~5.75% before ending the quarter at ~5.51%
Interest Rates
- Despite stubborn inflation figures, the Bank of England chose to cut the base rate for a fifth time in 12 months, lowering the rate to 4% in August and maintaining this rate in September.
- Amid concerns that the US economy is entering a slowdown, the US Federal Reserve cut interest rates for the first time since December 2024, lowering the key rate by 0.25% to between 4% and 4.25%.
- The European Central Bank held rates at 2% in September with the average rate of inflation across the eurozone remaining in line with their target of 2%.
Key Talking Points
- US tariffs remained headline news although trade deals were announced with the EU, South Korea and Japan. A deal remained out of reach with China, with a decision on tariffs deferred for a further 90 days until mid-November.
- The much-heralded summit in Alaska between Presidents Trump and Putin failed to provide any answers to the ongoing Ukraine/Russia conflict.
- Political turmoil continued in the UK, with the resignation of both the Deputy Prime Minister and sacking of the US Ambassador. Turmoil could be found in France too, with the loss of yet another Prime Minister.
- With possible tax rises on the agenda in the forthcoming Autumn Budget, ongoing high inflation and weak growth, the UK economic outlook continues to cause concerns.
Edgewater's View
- Although markets showed strong growth during the quarter, market volatility is likely to continue and there are signs that the US economy is already slowing.
- All eyes will be on the UK’s Autumn Budget as Chancellor Rachel Reeves attempts to balance election pledges, continued weak economic growth and stubborn inflation against her own fiscal targets.
- We continue to maintain that a diversified and actively management portfolio remains a key priority for investors at all levels, both in the short and long-term.
- Edgewater will continue to work with you, discussing adjustments to your portfolio when needed, and in line with your ongoing aims and objectives.
Should you wish to discuss your financial needs, you can contact the team by calling 01624 654000 or email mbannister@edgewater.co.im
