Market commentary – Review of Q2 2025

US equities advanced in Q2 ending the quarter up by 4.9%. Performance was led by IT and communication services, while healthcare and energy lagged due to drug pricing reforms and sector-specific pressures. Meanwhile, Trump’s ‘Big Beautiful Bill’ extended tax cuts and increased defence spending, which raised concerns about the fiscal sustainability of the US government. As a result, Moody’s downgraded the US credit rating, adding to market volatility and uncertainty.  

European equities posted strong gains in Q2 delivering a return of 6.2%. This was primarily driven by the industrials and real estate sectors along with defence stocks, which benefitted from increased NATO spending commitments. Elsewhere, consumer discretionary, healthcare, and energy underperformed. Despite the tariff threats from the US, markets recovered through the quarter as negotiations progressed.  

UK equities finished the quarter up by 4.1% but trailed other developed markets as it was impacted by its significant weighting in the energy and healthcare sectors – the only global equity sectors to register negative performance. Elsewhere, the industrials, telecoms, utilities, and real estate sectors were the best performing sectors. The Bank of England (BoE) cut interest rates to 4.25% in May, but inflation remains above their 2% target.  

Emerging markets outperformed developed markets, aided by a weaker US dollar and easing trade tensions, ending the quarter up 5.7%. Korea and Taiwan led the way, driven by political stability and renewed AI enthusiasm, respectively. Brazil also outperformed as the central bank hiked interest rates twice, lending support to the Real, which rallied against the US dollar. Elsewhere, China saw a loss of 3.9%. India underperformed due to growth and valuation concerns.  

Bond yields generally retraced their moves higher over the quarter. Although long-dated bonds in the US saw yields rise due to concerns over fiscal sustainability, elsewhere yields were range bound as inflation fell, and some members of the US Federal Reserve (the Fed) began to back further interest rate cuts. Bond issuance was also low over the quarter, which kept a lid on yields. In the UK, gilt yields fell following softer employment data and signs of slowing wage growth, which added to expectations for future rate cuts.