Q3 2025 Market Review

Delivery, Divergence, and Debt

The third quarter of 2025 was another profitable one for investors. Global equities rose by around 9%, with the UK market up by about 5%. Bond markets were mixed: UK government bonds slipped as rising debt concerns weighed, while corporate bonds produced modest gains.

Markets were supported by two key factors: strong company profits and resilient economic data — particularly in the U.S., where growth surprised on the upside. This strength, combined with the prospect of lower interest rates, drove equities to new highs through September, with emerging markets the standout performers.

 

Delivery: Profits Doing the Work

Companies once again delivered. U.S. businesses reported profit growth of 12% year-on-year — more than double expectations. Technology firms and banks led the way, supported by stronger U.S. economic growth (3.8% in Q2).

UK companies cleared a much lower bar, but bank profits remained strong (+17%). Emerging markets also rallied, with Chinese technology firms powering ahead.

Key point: Profits — not politics — drove markets higher in Q3.

 

Divergence: Not All Markets Moved Together

  • Equity markets split: cyclical and growth sectors outperformed; defensives like utilities and staples lagged.
  • Bonds split: corporate debt fared well; government debt struggled.
  • Regions diverged: the U.S. grew strongly while the UK and Europe flatlined under inflationary pressure.

Most importantly, companies and households remained financially healthy, while governments strained under heavy debt loads.

 

Debt: The Elephant in the Room

Government debt continues to climb — now c.£3 trillion in the UK and c.$37 trillion in the U.S. Servicing these sums is increasingly expensive. It is no surprise, then, that government bond markets found little support in Q3.

The picture is more positive elsewhere: corporate debt remains manageable, and consumers have not overextended. Bond investors rewarded this discipline, with corporate bonds trading higher.

 

Outlook

The third quarter proved once again that profits drive markets and companies adapt quickly to challenges. After strong gains, valuations are higher and a period of consolidation would not be surprising.

We have positioned portfolios with:

  • Exposure to equity markets offering better value,
  • Selective allocations to shorter-dated bonds, and
  • A focus on diversification to smooth returns.

In short: we remain encouraged by healthy companies, resilient consumers, and central banks with room to cut rates. While volatility will remain part of the journey, the long-term case for staying invested is as strong as ever.

 

Would you like more investment market insight? An in-depth version of this article, plus Rory's weekly and quarterly updates are all on the Magnus website.

 

 

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.

Rory McPherson
About the Author

Rory is CIO of Magnus, Wren Sterling Group's discretionary fund management business and Wren Sterling's Chief Market Strategist. He joined the business in September 2022, having previously worked at Punter Southall Wealth where he was Head of Investment Strategy; responsible for asset allocation and fund selection. Prior to that he worked for Russell Investments, running multi-asset funds for both retail and institutional clients. Rory has 20 years’ experience of working in financial services and is a CFA Charterholder.