Inside the markets | Helping you guide clients

Hello and welcome to the September 2025 monthly market updates.

My name is David Aujla and I'm the Lead Portfolio Manager for Invesco Summit Multi-Asset fund ranges and its multi portfolio service, or MPS.

September was a pretty strong month for markets. Certainly risk markets with equities generally outperforming bonds and within equities, large caps outperforming small caps and emerging markets outperforming developed markets.

Key drivers for emerging market outperformance included the US federal Reserve's rate cut and ongoing US dollar weakness, which is generally considered a tailwind for emerging markets stocks.

Latin American markets such as Mexico and Brazil were among the better performers, but Asian markets such as Vietnam and China also delivered high single digit returns, with China in particular benefiting from further fiscal and monetary stimulus and some net inflows into the Chinese equity market from foreign investors.

Within developed markets, Japanese equities were the standout performers. Despite the Bank of Japan announcing it will sell 330 billion odd yen of ETFs and 5 billion odd yen of J-REITS per year that it currently holds on its balance sheets. And remember, the Bank of Japan is a significant owner of Japanese equities, or the Japanese equity markets, I should say.

Investor optimism in Japan rose after Sanae Takaichi won the leadership race for the ruling party, which essentially meant that investors saw a greater chance of pro-growth policies and fiscal stimulus, which is a powerful driver of returns for the month.

And, of course, the rate cut and dollar weakness in the US that I just mentioned didn't hurt either.

U.S. equities also performed well, with the Magnificent Seven delivering strong returns, and investors expecting a strong corporate earnings outlook or certainly that's what looks like the market actually has been pricing.

Closer to home, unfortunately, UK equities were among the weakest of the major markets. Not helped by high gilt yields, some persistency of inflation and some sector specific pressure in areas like house builders and health care. And there was also, of course, a bit of political instability with a cabinet reshuffle during the month too.

And when we look at what's happened in markets so far in 2025, most equity markets have returned well into the double digits in terms of total return on a local currency basis, which is quite remarkable, really when you think about the backdrop we've had of such uncertainty and volatility?

And it seems an age ago now that we were talking about deep seek.

In fixed income markets, Investment grade corporate bonds were among the better performers in September, outperforming government bonds and high yield credits.

A mixture of credit spreads, tightening and a lack of exposure to the longer end of the curve were among the key drivers for investment grade credit outperformance.

Investor demand in that space in terms of issuance remained robust and of course, corporate fundamentals seem to be relatively sound too.

High yield credit lagged as investors preferred that higher quality in the credit space amid a backdrop of a deteriorating but still relatively solid U.S. labor market and, of course, some lingering tariff worries, too.

Longer dated government bond struggled due to yield curve steepening and those perceived inflation risks that I mentioned earlier.

U.S. government funding was due to expire at the end of the month, threatening millions of federal jobs.

Each year Congress must pass, I think, its 12 appropriation bills that provide funding for certain areas of federal spending and federal agencies.

The deadline to pass them is the 1st of October, which is the start of the fiscal year, that if agencies don't receive that funding or the authorisation to spend, they effectively shut down.

And that's what's happened.

So some government services are now temporarily suspended, and about 750,000 people are expected to be put on unpaid leave while the two parties negotiate a way forward.

Historically, shutdowns have been relatively short lived.

There have been about 20 odd of them since 1977, and they've lasted about a week or so on average.

Although in 2019 a shutdown did last more than a month and that was during Trump's first term.

Broadly speaking, markets have tended to ignore them, really, and I suspect they'll probably do that this time, too.

We did get a reminder that trade with the US is now not free or no longer free.

President Trump announced a new round of sectoral tariffs.

Included 100% tariff on branded pharmaceutical products.

Not great for the UK markets, 50% on kitchen cabinets, which feels strangely specific and 30% on upholstered furniture.

As mentioned earlier, the US fed cut rates by 25 basis points, with Chairman Powell at pains really to stress the weaker labor markets outlook as a reason for that cut.

He called it a “risk management” cut.

He's pretty careful with his words normally, and he seemed to send as clear message as he could really that we should expect another cut in October.

But of course things can change if data changes.

Here at home, the MPC, the Bank of England's Monetary Policy Committee, voted 7 to 2 to hold its bank rate at 4%.

It was widely expected by market participants and Andrew Bailey or Governor Bailey's comments after the meeting seemed to point towards a pause in the cutting cycle until the end of the year.

In Europe, rates were also unchanged, although different tone there in rhetoric.

It maintained his upbeat view on growth and inflation, which dampened expectations for cuts in the near term.

The Bank of Japan, also held policy rates, steady, although a couple of members did vote for a hike.

I’d say that bank is the outlier of the major central banks because it remains in the hiking rather than the cutting phase of the cycle.

We've spoken before of the idea of divergence between central banks, and that's something I think we're going to see more of going forward, in terms of their actions, at least.

Outside of equity and bond markets, gold continued its strong run this year, up around 12% for September alone, quite incredible and up around 47% year to date.

Central banks continue to buy and demand from investors via ETFs remain strong.

And actually at the moment, given the momentum, technical factors appear favorable.

Given the strong performance of equity markets and high levels of uncertainty, I think having a well-diversified portfolio now and the tools to adapt to changing conditions are an absolute must.

I say that every time, but I think it's particularly pertinent now.

Thank you for the time, that you've taken to watch this month's review.

I'll see you next time.

But as always, if you have any questions, please feel free to get in touch, in the meantime.

bye for now.