Q3 2025 Review: Resilient Quarter as Risk Appetite Grows
Market Commentary Quarter 3 2025
Global financial markets delivered a strong performance in Q3 2025, as risk assets rallied amid cooling trade tensions, solid corporate earnings, and continued enthusiasm for AI-driven growth. The policy backdrop was supportive, with investors positioning for a softer path of US interest rates. Rate-sensitive areas such as small caps and real estate benefited over the quarter. Growth stocks outperformed value, led by the technology sector, while bond markets were volatile due to geopolitical uncertainty and fiscal sustainability concerns. Commodities posted mixed but generally positive returns – gold and silver rallied to record highs, while oil prices declined.
US equities advanced strongly, with the S&P 500 up 8.28% and the Nasdaq Composite up 11.75% (in EUR terms). Market optimism was supported by a 25-basis-point rate cut from the Federal Reserve, bringing rates to 4.0–4.25%, with Chair Powell signaling the potential for further easing. Although job creation slowed in July and inflation edged slightly higher in August, tariff impacts remained modest. Strong GDP growth of 3.8% in Q2, resilient consumer spending, and robust corporate earnings underpinned market gains. Technology and communication services were the best-performing sectors, while healthcare and energy lagged.
European equities rose, supported by resilient earnings and moderating inflation. France’s index gained 3% despite political instability following Prime Minister Bayrou’s resignation and replacement by Sebastien Lecornu. Germany was slightly weaker, while Spain and Italy outperformed, rising 10.6% and 7.37% respectively.
Eurozone GDP grew 0.4%, driven by strength in services, particularly in Germany, Italy, and Spain, while France lagged. The ECB held policy rates steady as inflation aligned with its 2% target. In the UK, the FTSE 100 gained 4.97% (in EUR terms), helped by a weaker pound and global exposure of UK-listed firms. The Bank of England cut rates by 0.25 percentage points to 4.0% — its first cut since 2020 — while inflation remained at 3.8%.
Asian markets performed strongly as trade tensions eased and AI investment accelerated. China’s Shanghai Composite Index surged 13.68% on extended trade truces with the US, domestic chipmaker support, and increased AI spending. Japan’s Nikkei 225 rose 8.58% (in EUR terms), supported by a weaker yen, strong global semiconductor demand, and a new trade deal that lowered US tariffs on most Japanese exports from 25% to 15%. Broader Asia Pacific markets also benefited, with South Korea and Taiwan outperforming on tech strength, though India and ASEAN markets lagged.
US Treasury yields moved slightly lower across the curve, with the 10-year yield ending the quarter at 4.15%, down from 4.23% in June. Corporate bond spreads tightened across investment-grade and high-yield markets, reflecting solid investor demand and strong corporate balance sheets. In Europe, sovereign yields rose modestly with the benchmark 10-year increasing from 2.60% to 2.71%, while credit spreads narrowed, particularly in high yield. Gilt yields also rose in the UK despite the BoE’s rate cut, as fiscal pressures persisted.
Article Sources: Schroders Insights
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