Markets have been resilient in 2025 despite trade uncertainty and shifting policy expectations. The tentative pause in tariffs earlier this year sparked a rebound, with the S&P 500 closing at 6,584.29 on 12 September — about 12% year-to-date, supported by strong corporate earnings and steady consumer demand.
Recent Market Developments
Earnings Strength
· 84% of S&P 500 companies beat forecasts, delivering ~11% YoY earnings growth.
Tech leaders (“Magnificent Seven”) continued EPS growth.
Industrials and autos faced margin pressure from higher input costs.
Takeaway: Earnings breadth supports resilience, but cost pressures remain a drag on cyclicals.
Bond Rally
Powell’s dovish Jackson Hole remarks triggered inflows into bonds.
The US 10-year yield is around 4.06%.
Investors are reallocating into investment-grade credit and REITs ahead of expected cuts.
Takeaway: Fixed income is reclaiming its role as stabiliser and income source.
Currencies in Flux
The US dollar had its weakest first half in 50 years (–10–11%) before a modest July recovery.
Commodity-linked currencies (CAD, BRL, INR) remain pressured by tariffs and slower trade.
Takeaway: USD remains volatile, commodity currencies remain fragile.
Europe
ECB held rates steady at 2% in July.
Minutes reveal a split: some members warn of slowing growth, others focus on inflation risk.
Asia
Japan’s Nikkei 225: +4.7% in August, +10.5% YTD, supported by reforms and AI-related demand.
China: MSCI China +44% YTD, driven largely by retail flows.
India: –3.1% YTD; ASEAN remains positive, supported by supply chain shifts.
Policy and the Fed – All Eyes on September
Latest move: On 17 September, the Federal Reserve cut rates by 25 basis points, the first step in what markets expect to be a series of cuts.
Big banks forecast: Morgan Stanley and Deutsche Bank continue to expect two more Fed rate cuts in 2025 (Sep, Oct, Dec).
PIMCO’s view: Powell is more worried about labour market weakness than runaway inflation. Tariff-related inflation is a concern, but a wage-price spiral is unlikely.
The takeaway: The first cut confirms the Fed’s dovish tilt. Expect measured, data-dependent easing — balancing inflation risks with fragile employment trends.
Fund Flow Trends (as of 5 September 2025)
Equities: Strong inflows into US tech and India/ASEAN. Europe lags, with selective strength in defence and infrastructure.
Fixed Income: Bonds in demand. Inflows strong into investment-grade and shorter-duration strategies.
Commodities: Gold (~$3,670–3,700/oz, +38% YoY) continues to draw inflows as a hedge; oil faces persistent outflows.
Regional: China’s rally is still retail-driven, while India and ASEAN continue to see steady institutional support.
Why fund flows matter: Historical performance shows what has worked, and macro data gives us the backdrop. But flow data reveals real-time investor conviction — where capital is actively moving today. Combining all three gives us the clearest picture of where opportunities lie.
Looking Ahead
Cyclical boost from cuts: Rate-sensitive sectors (real estate, utilities, cyclicals) may gain two further cuts are expected.
Megatrends still dominate: AI buildout, energy transition, healthcare & longevity, Asia’s demographic rise, resilient income.
Risks to watch: US labour softness, geopolitical uncertainty, tariff-driven inflation.
Our Guidance
Stay invested — avoid timing Fed meetings.
Diversify across equities, bonds, and alternatives.
Tilt portfolios toward structural themes backed by both earnings and flows.
Why It Matters
Markets are preparing for a shift in policy. But the more important signal is that capital is already moving: into US tech, into Asia, into bonds, and into gold.
This isn’t about chasing headlines. It’s about positioning where conviction is strongest — and where resilience and growth are most likely to come in the years ahead.
