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Equities

The Equities Melt up Continues

ADMIN || 30th September 2025

Heading into Q4, the global economy has something for everyone, with different investors drawing different conclusions from the same data. Bond bulls point to signs that US job creation has slowed to a crawl. Equity investors are pushing indices to new highs, cheered by the prospect of quicker Fed cuts and a healthy earnings backdrop. In the distant background, goods prices are now showing the effect of tariffs, but no one seems terribly worried about long-run inflation.

So, the question arises: can the US slow ‘just enough’ to get the Fed into play without material economic damage?

Before we answer that question, we look at Q3 performance of various asset classes.

Major asset class performance in Q3 to date paints a picture of optimism laced with caution. Global equities have risen more than 6% even as global bonds struggled to generate positive returns. Gold, however, has delivered double-digit returns.

There has been weakness in US economic growth, most so in the job markets, but the Fed has started to cut interest rates. Policy support, together with slow-but-not-recessionary data, strengthens the base case scenario of a soft landing.

A recession remains main risk scenario, but job markets would have to weaken considerably further in the coming months for this to become a greater concern. Markets expect the Fed to cut rates twice more (25bps each policy meeting) in 2025 and twice further in 2026, bringing policy rates closer to its own estimate of a more neutral level (3%). The continued reduction in US rates means downward pressure on the USD will likely continue.

And then there is the tech boom. Tech earnings continue to be – in a word – stellar. The week that the BLS announced its downward revisions, the Nasdaq hit another record high. Because that was also the week that Oracle came out with very strong earnings, propelling Larry Ellison past Elon Musk to become the world’s richest man. Alibaba earnings were similarly excellent and are part of a trend; US and China tech continue to have robust EPS momentum. The bears will argue that AI is a bubble and use cases are not materializing fast enough. But for now, it looks the AI theme has plenty of room to run.

Risk assets especially equities have had a spectacular run since mid-April and should finish the year on a positive note.

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