October Market Update

Markets entered the final quarter of 2025 with renewed confidence, shaking off a turbulent summer marked by uneven growth data, inflation stickiness, and shifting central bank rhetoric. September proved surprisingly resilient for risk assets: global equities pushed higher, bond yields stabilised, and volatility remained contained despite significant political and economic developments. For investors, the dominant theme has been the market’s ability to look through near-term uncertainty and price in a gentler landing for global growth.

Equities: Gains Widen, but Leadership Remains Narrow

Global equities rose steadily through September, with most major indices advancing into early October. The S&P 500 notched fresh record highs, extending its year-to-date gains well into double digits, supported by robust corporate earnings and optimism that U.S. interest rates have now peaked. The technology sector continued to lead, fuelled by persistent enthusiasm around artificial intelligence, cloud infrastructure, and automation. However, gains have broadened somewhat, with industrials, energy efficiency, and healthcare showing renewed strength.

European equities also posted solid returns. The STOXX 600 climbed as inflation data moderated across the eurozone, bolstering expectations that the European Central Bank will cut rates later this year. In the UK, the FTSE 100 gained modestly but underperformed global peers, weighed by a stronger sterling and continued pressure on consumer-facing sectors. Nevertheless, dividend yields and defensive characteristics kept UK equities appealing to income-seeking investors.

In Asia, Japan remained a bright spot. The Nikkei advanced on continued corporate reforms, improving wage growth, and expectations that the Bank of Japan will maintain accommodative policy. Meanwhile, emerging markets were mixed — Latin America benefitted from easing inflation and stable commodities, while China’s markets saw only tentative recovery despite further fiscal and property-sector support. Overall, global equity momentum was underpinned by the sense that central banks are now shifting from fighting inflation to sustaining growth.

Fixed Income: From Headwinds to Breathing Space

After a year of relentless upward pressure on yields, September brought some relief to bond investors. The U.S. Federal Reserve delivered its first interest rate cut of 2025, trimming the benchmark rate by 0.25%. Markets interpreted the move as confirmation that policy had reached its tightening limit. The U.S. 10-year Treasury yield, which hovered around 4.6% during the summer, eased back toward 4.1% by month-end.

In the UK, gilt markets were volatile but ultimately steadier. The 30-year gilt briefly touched yields not seen since the late 1990s before retracing as investors speculated that the Bank of England may halt active gilt sales and pivot to a more neutral stance. Across Europe, government bond yields followed a similar pattern, falling as inflation data softened and fiscal concerns receded.

Corporate credit also saw renewed interest. Investment-grade spreads narrowed marginally as default expectations remained contained, while demand for higher-yielding debt stayed firm. The appetite for income-producing assets is evident, reflecting investor conviction that inflation will continue to ease through 2026.

Commodities and Currencies: Mixed Signals

Commodities presented a mixed picture. Oil prices drifted lower through September, with Brent crude falling into the mid-$60s per barrel range as global supply comfortably outpaced demand. The decline, though modest, helped calm inflation fears and provided a modest tailwind for consumers.

Gold, on the other hand, remained one of the standout performers of 2025. Prices pushed above $3,900 per ounce, supported by softer yields, a weaker dollar, and ongoing geopolitical unease. The metal’s strength highlights the cautious tone beneath market optimism — investors remain alert to risks ranging from Middle Eastern tensions to potential policy missteps by central banks.

Currency markets reflected the same cross-currents. Sterling strengthened modestly against the dollar as UK inflation data showed signs of improvement, while the euro remained range-bound. The yen weakened further, prompting speculation that the Bank of Japan may intervene again to steady the currency.

Macro and Political Backdrop: Uncertainty Repriced

Economic data across developed markets suggest a global economy slowing but still expanding. The U.S. continues to grow at an annualised rate above 2%, buoyed by resilient consumer spending and a robust labour market. Europe’s growth remains more fragile, though headline inflation has cooled faster than expected, providing room for eventual monetary easing. In the UK, the picture is mixed: wage growth remains firm, but elevated borrowing costs continue to pressure housing and small business investment.

Politically, headlines have been equally active. The U.S. government shutdown that began on 1 October has introduced a new layer of uncertainty, though markets have thus far shrugged it off as temporary. In the UK, fiscal discipline remains under scrutiny as higher debt-servicing costs limit room for new spending ahead of the next Budget. Globally, trade relations remain tense — ongoing tariff disputes and industrial policy competition continue to shape market expectations — but these frictions have yet to derail growth.

In Asia, policy remains the key story. China’s leadership has intensified efforts to stabilise growth, accelerating infrastructure spending and easing property-sector restrictions. Japan’s political transition has reinforced continuity on economic reform and corporate governance, boosting investor sentiment.

Looking Ahead

As autumn progresses, markets are entering a more nuanced phase. The broad narrative has shifted from fear of persistent inflation to anticipation of a soft landing, but complacency would be premature. Corporate earnings remain robust, yet margins are increasingly sensitive to wage and input costs. Meanwhile, central banks face the challenge of easing without reigniting inflation.

In short, September reminded investors that markets can climb even when the news is mixed — but the path ahead is unlikely to be linear. Economic resilience, policy adaptation, and geopolitical stability will determine whether the current optimism carries through the year’s end.

Disclaimer: This content is for your general information purposes only and does not constitute investment advice. The commentary is intended to provide you with a general overview of the economic and investment landscape. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

Past performance is not a reliable indicator of future results. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Your capital is at risk and the value of investments, as well as the income from them, can go down as well as up and you may not recover the amount of your original investment.