James Giblin

August was a welcome quiet spell for financial markets, even though there were plenty of economic and political developments. In the US, the spotlight was on the Trump Administration’s ongoing pressure on key financial institutions. This included the removal of the head of the Bureau of Labour Statistics after a disappointing jobs report, followed by scrutiny of Federal Reserve Governor Cook over claims of mortgage fraud. A last-minute meeting between President Trump and President Putin made little progress toward ending the war in Ukraine. In Europe, political uncertainty increased as the French government looked likely to lose a confidence vote, which could lead to a new Prime Minister or fresh elections. Economic data was mixed: the US job market showed early signs of slowing, and inflation remained stubbornly high in both the US and UK. Still, broader indicators of economic activity stayed strong. The Bank of England also lowered interest rates, as expected.

Markets were quiet over the summer, with share prices showing very little movement. As a result, returns across asset classes were generally modest. Japanese stocks were the standout, helped by strong company profits and improving investor confidence. In the US, comments from Federal Reserve Chair Powell at the Jackson Hole conference led investors to expect fewer interest rate hikes, which helped support bonds and other interest-sensitive investments like REITs. Stock markets in the UK, Europe, and the US posted small gains. UK inflation concerns pushed up expectations for interest rates, which hurt inflation-linked government bonds. The US dollar continued to weaken, which was a headwind for international investors with US-based investments like emerging market stocks and commodities.

While there’s still a lot of uncertainty about the global economy over the next few years, our outlook for growth has improved. Forecasts for US economic growth in 2025 remain modest, around 1%, but that’s a noticeable improvement from the recession fears that followed the tariff changes in April. Even so, the longer-term effects of US economic policy, both directly and through the uncertainty it creates for households and businesses, are still hard to predict. There are many possible paths the global economy could take. Growth continues to be slow in Europe and the UK, while China is dealing with long-term economic challenges.

Given this backdrop, we’re keeping a balanced but slightly cautious approach. We’re neutral on equities, which could still rise if company earnings improve. We’re more cautious on corporate bonds, especially higher-quality US bonds, because prices have risen quickly and the potential for gains now looks limited. We’ve also become less positive on emerging market bonds after a strong run. For government bonds, we’re staying neutral: while current interest rates are appealing, the risk of sudden inflation, possibly from new tariffs, makes us less confident that bonds will always move in the opposite direction to stocks. With so many possible economic and political outcomes, we continue to stick to our core principles of diversification and focusing on preparation rather than prediction.

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