Market & Strategy Update - Q4 2025
- Matthieu
- Oct 2
- 4 min read
In the latest edition of our Quarterly Market & Strategy Update:
Executive summary
Economy
The US economy has defied expectations of weakening growth that stemmed from tariffs and policy uncertainty. While the labour market’s recent weakness is cause for concern, other data sources are pointing towards improving growth in Q4. In Europe, the decline in sentiment due to political instability is unlikely to overwhelm the positive fiscal upswing. China continues to support its economy through monetary and fiscal channels, with the recent anti-involution campaign aimed at tackling deflation. Although the current reacceleration of US inflation could complicate the Fed’s monetary policy decision, it has become increasingly clear that global governments are erring on the side of monetary and fiscal largesse. This should continue to support nominal growth.
Equities
Global equities have performed well in Q3 as growth has exceeded expectations, and central banks have eased policy. While US equities continue to lag international equities YTD, Q3 has seen this gap narrow. Tech stocks have been leaders as the AI capex boom continues. Recent weeks saw market participation broaden, supporting the resilient growth narrative. Speculative excesses are evident in specific segments of the market, but sentiment readings are not yet extreme. US equity valuations provide no margin of safety in case of negative growth surprises. Foreigners remain excessively allocated to US markets, while the incentives to repatriate capital domestically are rising. Volatility will likely pick up in Q4, but investors should buy pullbacks in cyclical sectors, and international equities.
Bonds
Bond yields have been under pressure in Q3 due to growth concerns and rate cuts. But widening budget deficits and rising odds of a reflationary wave are likely to push long-term yields higher going forward. Shorter-term yields could remain pinned by concerns over political meddling in monetary policy decisions. In Europe, rate cuts appear to be off the table, while rising fiscal spending will also keep upward pressure on yields. Credit spreads are approaching historical tightness, suggesting no imminent growth concerns but also reflecting poor government finances. Either way, adding credit risks at these levels appears unwise. Rather, investors should keep looking to EM debt, where real rates are elevated and dollar weakness opens the door to rate cuts.
Currencies
The USD could see a rebound in Q4, as aggressive rate cut expectations are temporarily revised on the back of stronger data. Such a rebound should be faded, as the USD likely remains in a structural bear market.
Commodities
Despite certain pockets of strength, the overall commodity complex has been weighed down by energy, as OPEC+ has been normalizing its production. With reaccelerating inflation and growth likely to prove resilient, combined with rising geopolitical tensions, investors should keep a healthy allocation to commodities.
Precious metals
Gold has continued its relentless and historical rally, but has been outshone by other precious metals long forgotten by investors. Western investors have ramped up their purchases of the yellow metal, but there is still no sign of exuberance and pullbacks should be bought.
To read our complete Market & Strategy Update for this quarter
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