Key themes for Q3 2025
The volatility experienced in the first half of the year is likely to persist as markets continue to play a crucial role in guiding the US administration towards sensible, amicable policy. Markets will also be led by incoming data and what that teaches us about how the US and global economy is dealing with uncertainty and new cost pressures (Guide to the Markets – UK pgs 7, 14, 15, 18).
We should focus on portfolio strategies that will cope with a range of economic outcomes. Within equities, it seems sensible to use regional stock diversification (pgs 45, 57, 59) and income strategies (pg 49) to reduce risks that could arise from too much dependence on the fortunes of tech, and the broad US market (pgs 54, 63).
Fixed income investors are having to contend with conflicting risks of higher inflation and slowing growth, causing volatility in bond markets. Despite this, we think bonds still have an important role to play in a portfolio (pg 68). However, if a resurgence of inflation turns out to be the dominant force then investors should remember the lessons from 2022 and the role of real assets in providing an inflation hedge (pg 79).
Investors should be mindful of how currency moves could compound losses in US assets in a number of risk-off scenarios. Be aware of currency exposures and consider hedging USD exposure (pgs 12, 75).
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