Global markets continued their move upwards in the third quarter of 2025, with investors brushing off geopolitical and macroeconomic concerns.

The MSCI World Index returned 7.36% over the period, driven by continued exuberance surrounding AI as well as strong corporate earnings. It was of course the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) that led the charge in the third quarter, returning 18.73%, continuing to outperform the S&P 500 year-to-date.

The Australian market also performed well over the quarter, reaching all-time highs. The ASX 200 returned 3.59%, led by a strong quarter for energy stocks amid an increase in commodity prices. Emerging markets climbed with the tailwind of a weaker US Dollar.

Fixed income markets finished in the green as investors continue to exhibit concerns surrounding future growth expectations. As a result, yields fell over the quarter, which was more significant on the short end of the yield curve compared to the long end. As government bond investors exhibit caution, credit markets remain confident, causing credit spreads to tighten further.

On a separate note, Gold continued to drive higher in the third quarter as rising geopolitical tensions, a weaker US Dollar and higher US Debt levels provided tailwinds for the metal.

The S&P 500 returned around 7.91% over the third quarter, driven by a continuation of the AI theme and strong corporate earnings. Earnings growth year-on-year points towards an 8.00% increase, which is higher than the 7.30% predicted at the start of the quarter.

In September the US Federal Reserve delivered on the market expectation, cutting interest rates by a further 25 basis points. Although investors hoped for a larger rate cut, the equity market nonetheless welcomed the move. From a macro perspective the US continues to show resilience; the passing of Trump’s ‘Big Beautiful Bill’ means fiscal spending continues to be strong and inflation continues to be under control. Concerns of a weakening labour market and tariff volatility have been brushed off by the equity market for the time being.

In Australia, the equity market also ended the quarter positively picking up a healthy 3.60% gain (S&P/ASX 200). A rally in commodity prices provided a tailwind for the mining / resources sector leading to a gain of 17.74% (S&P/ASX 200 Resources index). Technology stocks also performed well due to general risk-on sentiment which benefited growth stocks. In contrast to recent trends, one of the most discussed companies in the index, Commonwealth Bank, fell over the quarter as investors became increasingly concerned about its elevated valuation.

Elsewhere, Chinese equities increased after the government announced greater investment in chip manufacturing. There also appeared to be an acceleration of AI spending amongst major Chinese companies over the period. Japan also delivered strong performance in the third quarter due to a strong earnings season, and clarity on the US-Japan tariff policies. The UK market experienced the best quarter since 2022.

Foreign exchange markets were mixed over the quarter with the US Dollar appreciating after the weakness seen in the first half of the year. The US Dollar gained around 1% over the three months from June due to several reasons including a resilient US economy and a cautious stance from Jerome Powell, which led investors to price in fewer rate cuts than previously expected.

The appreciation of the US Dollar Index was helped by a weaker Yen, as the Bank of Japan kept rates at ultra-low levels. Similarly, European and UK economic growth data came in weaker than expected, creating a headwind to both currencies.

The Australian Dollar appreciated over the third quarter due to a rally in commodity prices which provided a tailwind to the commodity-linked currency. Further to this, the RBA remained hawkish, leading investors to price in the possibility of less rate cuts than previously expected.

Global fixed income markets were divergent during the September quarter, with government bond yields falling in the United States while they rose in the UK, Europe, and Australia. This reflects the differing economic outlooks in these markets.

The US saw their first rate cut of the year in September. A cooling labour market in conjunction with under control inflation allowed the Federal Reserve to cut the central bank rate from 4.50% to 4.25%. Although the 25-basis point rate cut was fully priced in by the market at the time of the announcement, a slightly dovish tone from Jerome Powell increased the expectations of more substantial rate cuts.

In Australia fixed income yields fell as concerns around inflation continued to spook investors. At the end of the second quarter markets were pricing in a rate of 3.10% which implied three further cuts. At the end of the third quarter the market is now expecting an interest rate of 3.46%. The re-pricing of short-term interest rates had the effect of lifting the front end and flattening the yield curve.

Elsewhere, tariff uncertainty caused yields to rise in the Eurozone. UK Gilt yields rose amid substantial debt issuance and sticky inflation concerns. Japanese fixed income struggled as political concerns grew.

Credit spreads remain tight, as both credit and equity market investors continue to downplay the potential risk of an economic slowdown. In contrast, the government bond market exhibits a more cautious stance.

Looking forward to the end of 2025, we are likely to continue to see spouts of volatility as geopolitical tensions continue across the globe, the most notable of which are the threats that President Trump continues to make to other leaders regarding tariff policies. As we have seen in April, the market does not take tariff policies lightly as it causes real concern for a potential reignition of inflation.

Domestically the rally in commodities has supported the economy in the last quarter, however the RBA continues its cautious stance creating a headwind for the market.

Fixed Income:

Fixed income continues to present an appealing opportunity due to the attractive yields currently available in the market.

Despite the opportunity for healthy income, the fixed income market is likely to continue to experience volatility, being bashed around by economic data which helps to shed light on inflation and economic growth forecasts. Similarly, central bank rhetoric will continue to be studied by investors to determine the path of interest rates, subsequently moving fixed income markets.

Desirable yields, alongside the risk of further volatility, point towards a medium duration approach to bond investing. Picking up income on the longer end of the curve whilst protecting against any shocks to inflation or economic growth forecasts by also allocating to the short end of the curve appears to be the sweet spot for generating the best risk-adjusted returns for clients.

In the US, investors are predicting a 92% chance of 50bps of cuts by the end of the year, meaning that the market is almost fully priced for this. As a result, if there was to be any change to these expectations fixed income markets are likely to move significantly.

Credit spreads are extremely tight therefore you should be selective within this asset class so as not to take any unnecessary risk. We think that this points to an active management approach (rather than passive) to allow managers to appropriately assess whether the minimal gain over safe government bonds, justifies the added risk.

Equities:

Looking forward, we think that the US has the foundations for continued success in the equity market. Positive corporate earnings, falling inflation, high fiscal spending and a cooling labour market which points to further rate cuts paints a positive picture going forward, although risks remain.

There is no avoiding that equity valuations in the US are high, however, as the US is at the forefront of AI developments, steep valuations can be justified though perhaps not to the extent they are today. It is important to consider that the S&P 500 is extremely concentrated with AI related companies, and therefore a correction in valuations will hurt the broader market.

Whilst AI is without doubt a megatrend going forward you must bear in mind that the leaders of the trend will continue to change, just as they did with the growth of the internet. A resurgence of inflation would also create problems for the broader market.

Domestically, the outlook for Australian equities is positive, underpinned by hopes of an RBA rate cut and an improving domestic economic backdrop, although pockets of elevated valuations, particularly in the banking sector, remain a concern.

It is advisable to implement a diversified strategy for equity investing to capitalise on strong market returns, while mitigating the potential risks associated with concentrating investments in a single region, sector or style.

General Advice Warning
This update is issued by Ventura Investment Management Limited (AFSL 253045), which is a related body corporate of Centrepoint Alliance Limited.

The information provided is general advice only and does not take into account your financial circumstances, needs or objectives. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement for the relevant product before you make any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. It is imperative that you seek advice from a registered professional financial adviser before making any investment decisions.

For more information, refer to the Financial Services Guide (FSG) for Ventura Investment Management Limited (available at https://venturafm.com.au/media/1729/ventura-fsg-update-nov.pdf).

Disclaimer
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