Emerging Markets also produced significant returns as the weaker dollar benefitted their economies. European Markets, including our domestic FTSE100 recorded positive gains, but looked rather lacklustre in comparison.

We believe the main risk to markets is the US fiscal deficit. Should US government bond investors become concerned that the US’s growth and debt dynamics are unsustainable then this could cause a rise in US borrowing costs that would likely cause a major selloff in equities and bonds alike. The most likely catalyst for this would be slower economic growth caused by tariff uncertainty reducing tax receipts further thus widening the deficit, although this scenario seems to have been firmly parked for now. Alternatively, either an uncredible appointment for the next Federal Reserve chair, a selloff in “stable coins” which are often backed by US government bonds, or a belief that recent AI spending will not create the anticipated return could also become catalysts.

One important point to note is that the US Federal Reserve has started cutting interest rates. It is very unusual to get a sell off during a rate cutting cycle. The catalyst for the 2000 burst was the Federal Reserve raising rates not lowering them. Likewise, while unemployment and house sales in the US don’t look overly positive the almost 100% halt to migration and rise in deportations in the US has lowered the number of working age people and probably the demand for houses. It is therefore increasingly difficult to separate the cycle from permanent changes to the economy.

Looking forward the politicisation of the Fed could be the most significant event currently not impacting financial markets. Trump’s appointment of Stephen Miran (and dirt digging on the incumbent Fed members) with the goal to lower interest rates irrespective of the economic climate risks undermining confidence in the Fed. If investors lose confidence in the Fed, bond yields in the US will rise as investors will fear inflation. Given that US interest rates have historically been the benchmark for a risk-free asset, this has consequences for every financial asset as a risk-free asset is needed to calculate the relative value of everything else. A higher yielding risk free asset means all risky asset also need to return more (therefore their price goes down).

The Fed meeting in September was the first meeting to feature Trump’s man Miran, he duly did his masters bidding voting for a 0.5%. In the anonymous “dot plot” where members show their expectations for future rates his dot is a clear outsider expecting rates to be 2.75% by the end of the year 0.75% below the 3.5% lower estimate from all other members.

The U.S. government bond market (Treasuries) appears unconcerned about the potential erosion of Federal Reserve independence. In September, yields actually fell across the maturity spectrum. The 1-year bond saw a 0.15% drop, while the 10-year and 30-year maturities fell 0.07% and 0.19% respectively.

The market’s prevailing view seems to be that the President’s limited authority to remove Governors “for cause” is a sufficient safeguard. Given that no Governor has been ousted already, investors are forecasting that there is no viable avenue for a quick change. With only two more Governors scheduled to end their 14-year terms before the current presidential term concludes in November 2028, the market sees little chance for POTUS to “stack” the board.

Gold reached fresh highs over the quarter. According to data from the Gold Council the most significant change in demand came from EFT buyers who bought $397bn in the first six months of 2025 compared to being net sellers of $120bn in the last six months of 2024. Central Banks were relatively stable buying $415bn (far higher than pre 2022 levels) but jewellery continues to fall with demand down to $782bn from consistently being over $1,000bn per 6 month period over the last decade (Covid period aside).

Overall, the current economic environment will continue to favour equities versus bonds at the margin. Many equity market valuations remain below their long-term averages the exception being the largest US companies. We see particular value in smaller listed companies, healthcare, Emerging Markets, financial services and cloud computing.

Please note that we do not provide advice on individual stocks, the data contained within this document is for information purposes only and does not constitute advice. It has been prepared to demonstrate the challenges faced in the market in the present climate.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up. Investors may not get back any of the amount originally invested.