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Global market summary in Q3 2025
Q3 2025 brought strong gains for global stocks and US bonds, with major indices hitting record highs. Investor confidence bounced back from the April tariff volatility, helped by strong company earnings in late July. Continued trade talks between the US and Europe, along with China, paused planned tariffs.
In August, markets rose after Federal Reserve (the ‘Fed’, the US Central Bank) Chair Jerome Powell signaled possible interest rate cuts at the annual central bankers’ meeting, also known as the Jackson Hole Symposium. The S&P 500 hit new highs, and yields on the US government bonds (‘Treasuries’) dropped. This lifted US investors’ risk appetite to invest more in overseas markets like Europe and emerging market economies.
In September, the Fed cut interest rates by 0.25% as expected, bringing the rate down to a range of 4.00%-4.25%. This move helped global stock markets grow even further. However, in France, political instability impacted the country’s growth. Former Prime Minister Bayrou lost a confidence vote over a new budget-cutting plan for 2026.
Overall, the quarter showed strong gains, as reduced trade tensions and the Fed’s easing policies kept markets moving upwards.
How did global stock markets perform in Q3 2025?
After a busy first half, Q3 saw solid stock market gains driven by strong US earnings, a Fed interest rate cut in September, and easing trade tensions. Growth stocks, especially in the Information Technology and Communications sectors, led the rally. This is supported by continued AI infrastructure investments from major US tech companies.
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The S&P Emerging and S&P Developed Ex-U.S. data are reported in multiple currencies, and all others are reported in USD.
Emerging market countries outperformed developed market countries in the third quarter, with the S&P Emerging Market Country Index rising by 9.9%. China and Taiwan led the rally, helped by strong gains in AI-related technology and communications sectors. Other factors include the trade talks between the US and China and a weaker US dollar. All of these developments encouraged US investors to look for opportunities in foreign countries.
There was a notable shift towards US small-cap stocks, with the S&P Small Cap 600 Index returning 9.1%. The main reason was largely driven by investors’ expectations of the Fed to cut interest rates. In September, the Fed did cut rates by 0.25%, which helped lower borrowing costs for smaller companies. This made it easier for them to grow and boosted investor confidence. As a result, more attention shifted from large to small-sized companies in the market.
Large-cap US companies continued to deliver solid returns, with the S&P 500 gaining 8.1% in the quarter. The rally began in July after many companies reported higher-than-expected earnings results, partly because the weaker US dollar helped boost profits for multinational companies' earnings from overseas. Another key factor was ongoing investment in AI infrastructure, led by major tech companies like Microsoft, Nvidia and Oracle. These strong earnings and growing interest in AI helped keep investor confidence high.
Developed market countries were led by Japan, helped by a weaker yen that boosted its export-heavy economy. The UK also had a strong quarter, its best since 2022, driven by overseas earnings from oil, healthcare and defense companies. In contrast, France saw volatility due to political and economic concerns. Nevertheless, when combined, developed countries delivered a solid return for the quarter.
TOPIX index is reported in USD, and all others are reported in their local currency.
Although there were concerns about overexposure to tech companies, the stock market delivered a strong performance over the quarter. Growth stocks (stocks that are growing quickly and expected to keep expanding, often found in sectors like information technology, communication and consumer goods, etc.) continued to deliver positive returns over this quarter, helped by AI-related spending and the Fed’s easing policy. A solid earnings season, boosted by the weaker US dollar, also supported market gains.
The sector performance data is sourced from September, Third Quarter 2025 Review and Outlook article published by Nasdaq.
How did US bond markets perform in Q3 2025?
The US bond market performed well in Q3 2025 as investors welcomed the Fed’s first interest rate cut since January 2025. The rate cut was widely expected by many global investors because of weaker-than-expected job reports and the surge in unemployment recorded in August. Additionally, US inflation stayed elevated at 2.9% in August according to the Consumer Price Index (‘CPI’).
High-yield, or “junk bonds”, did particularly well. The ICE BofA US High Yield Index rose 2.4% as investors looked for higher returns in lower interest rate environments.
US government bond (also known as ‘Treasuries’) yields fell over the quarter. The 10-year Treasury yield dropped from 4.25% to 4.15% (-0.1%), with the Bloomberg Long U.S. Treasury Index up 2.49%.
The 2-year Treasury yield fell from 3,8% to 3.6% (-0.2%), with the Bloomberg 1-3 Year U.S. Treasury Index up 1.12%.
Bond prices and yields move in opposite directions. When yields fall, prices rise. Because long-term bonds are more sensitive to rate changes, they earn higher returns than short-term bonds. The small drop in short-term yields slightly steepened the yield curve.
Usually, elevated inflation pushes yields higher, since investors want extra return to offset lost purchasing power. But in 2025, despite rising inflation linked to the Liberation Day Tariff announcement, yields fell as investors expected further interest rate cuts from the Fed, due to slowing growth and a weakening labor market.
Looking ahead, US bonds seem to be broadly influenced by the Fed’s rate policies for the rest of 2025. Short-term yields are likely to follow the rate changes, and high-yield bonds could be attractive if the rate continues to fall, in line with investors’ expectations.
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