As we reach the midpoint of 2025, global markets have shown a notable degree of resilience, even as geopolitical events, mixed economic data, and shifting interest rate expectations have kept investors on edge. Our Head of Investment Chris Wheeler explores how the second quarter of the year was shaped by three key themes:
- Geopolitical tension in the Middle East
- The changing outlook for interest rates,
- Positive economic momentum in major economies, but there are signs this may be slowing.
Geopolitics and the Market Response
The most dramatic development of Q2 came in June, when hostilities between Israel and Iran escalated, culminating in US-led strikes on Iranian nuclear sites. Despite the seriousness of the events, markets took a relatively measured view. Oil and gold prices rose sharply in the immediate aftermath, but gains were pared back as fears of a wider regional conflict eased.
Crucially, there was no significant disruption to global oil supply, with, as we write this, the Strait of Hormuz remaining open. This limited the inflationary impact of the crisis and helped calm nerves across global equity and bond markets.
Interest Rates: A Turning Point?
The second quarter saw a shift in tone from central banks on interest rates. After months of holding rates steady, both the US Federal Reserve and the Bank of England indicated that we may now be near the peak of the rate cycle.
In the UK, inflation continued to fall to a four year low, with the Consumer Price Index (CPI) dropping closer to the Bank of England’s 2% target. While core inflation and services inflation remain slightly elevated, many economists now expect the Bank to begin reducing rates later in the year, depending on how the data evolves.
Global Equities – Mixed but Mostly Positive
Equity markets posted modest gains over the quarter, with regional variation driven largely by economic data and interest rate expectations.
- US equities benefited from continued strength in large-cap technology stocks and growing optimism around artificial intelligence and productivity gains. The S&P 500 returned a modest positive performance in Q2.
- UK equities remained relatively flat, with the FTSE 100 under pressure from weaker energy prices and lacklustre consumer demand. However, dividend yields remain attractive, and the mid-cap FTSE 250 index showed signs of recovery on improved sentiment around UK growth.
- European markets outperformed slightly, buoyed by falling inflation and better-than-expected earnings results in several sectors, including industrials and consumer goods.
- Emerging markets delivered mixed results. While China’s economic recovery remains sluggish, India and Brazil saw improved performance, supported by local reforms and investor inflows.
Bond Markets: Stability Returns
After a volatile 2024, bond markets steadied in Q2. As inflation expectations fell and central banks signalled a more dovish stance, government bond yields came down slightly, boosting prices. UK gilts, US Treasuries, and investment-grade corporate bonds all saw positive returns, offering a reminder that fixed income remains an important tool for income and diversification.
What This Means for You
We believe that current global events and market conditions underscore the value of staying invested through periods of uncertainty. While headlines can cause short-term volatility, portfolios diversified across regions, asset classes, and sectors have generally continued to perform in line with expectations.
Our investment partners continue to focus on long-term fundamentals, adapting to market conditions where appropriate but avoiding reactive, short-term decision making. As always, your financial plan should remain aligned to your goals, time horizon, and risk tolerance – and not be dictated by temporary market noise.
If you have any questions about your portfolio or would like to review your investment strategy, please don’t hesitate to contact your adviser.
As we reach the midpoint of 2025, global markets have shown a notable degree of resilience, even as geopolitical events, mixed economic data, and shifting interest rate expectations have kept investors on edge. Our Head of Investment Chris Wheeler explores how the second quarter of the year was shaped by three key themes:
Geopolitics and the Market Response
The most dramatic development of Q2 came in June, when hostilities between Israel and Iran escalated, culminating in US-led strikes on Iranian nuclear sites. Despite the seriousness of the events, markets took a relatively measured view. Oil and gold prices rose sharply in the immediate aftermath, but gains were pared back as fears of a wider regional conflict eased.
Crucially, there was no significant disruption to global oil supply, with, as we write this, the Strait of Hormuz remaining open. This limited the inflationary impact of the crisis and helped calm nerves across global equity and bond markets.
Interest Rates: A Turning Point?
The second quarter saw a shift in tone from central banks on interest rates. After months of holding rates steady, both the US Federal Reserve and the Bank of England indicated that we may now be near the peak of the rate cycle.
In the UK, inflation continued to fall to a four year low, with the Consumer Price Index (CPI) dropping closer to the Bank of England’s 2% target. While core inflation and services inflation remain slightly elevated, many economists now expect the Bank to begin reducing rates later in the year, depending on how the data evolves.
Global Equities – Mixed but Mostly Positive
Equity markets posted modest gains over the quarter, with regional variation driven largely by economic data and interest rate expectations.
Bond Markets: Stability Returns
After a volatile 2024, bond markets steadied in Q2. As inflation expectations fell and central banks signalled a more dovish stance, government bond yields came down slightly, boosting prices. UK gilts, US Treasuries, and investment-grade corporate bonds all saw positive returns, offering a reminder that fixed income remains an important tool for income and diversification.
What This Means for You
We believe that current global events and market conditions underscore the value of staying invested through periods of uncertainty. While headlines can cause short-term volatility, portfolios diversified across regions, asset classes, and sectors have generally continued to perform in line with expectations.
Our investment partners continue to focus on long-term fundamentals, adapting to market conditions where appropriate but avoiding reactive, short-term decision making. As always, your financial plan should remain aligned to your goals, time horizon, and risk tolerance – and not be dictated by temporary market noise.
If you have any questions about your portfolio or would like to review your investment strategy, please don’t hesitate to contact your adviser.