Your quarterly market commentary

Overview 

• Strong market performance: Global share markets rose sharply in the third quarter of 2025, with technology and AI companies leading the way. Many AMP KiwiSaver Scheme funds grew more than 5% over the quarter.
• Interest rates easing: Central banks, including New Zealand’s, began cutting interest rates as inflation came down. This helped both share and bond markets deliver positive returns.
• Trade outlook improving: Recent progress in trade talks between major countries reduced uncertainty and helped lift investor confidence.
• Outlook remains positive: Lower interest rates and steady company earnings are supporting markets, but staying diversified and focused on long-term goals remains important.

Third quarter 2025 market review

The third quarter of 2025 delivered broad gains across almost all major asset classes, as several positive forces came together: easing global trade tensions, continued enthusiasm for technology/AI, and the start of interest rate cuts by central banks. Equity markets around the world surged to new highs and bond prices rose as yields fell. We highlight three key themes from this quarter - a global equity rally led by technology, a pivot in central bank policy that boosted bond prices, and an improving trade backdrop.

This is evidenced in returns over the quarter with many AMP KiwiSaver Scheme funds posting more than 5% growth during the quarter.  This continues a strong run of returns for Kiwi savers (and other savers) over the past few years.  To view the latest AMP KiwiSaver Scheme returns, please view them here:  KiwiSaver returns September 2025
 

Equity markets reach record highs in broad rally

Global equities surged in the third quarter of 2025, marking one of the strongest quarters in recent years. All three major U.S. indices (Dow Jones, S&P 500 and Nasdaq) hit new all-time highs, underscoring the resilience of the market. This rally was driven by robust corporate earnings and continued excitement around technology. During the latest reporting season round, over 80% of firms that reported earnings beat profit expectations making it one of the best earnings seasons on record. 

Technology and AI-related shares led the charge and growth-oriented sectors like Technology, Communication Services, and Consumer Discretionary outperformed more value-oriented sectors.

International markets also rose, riding the same wave of optimism. Developed market shares in Europe and Asia advanced in tandem with U.S. shares during the quarter with most major indices up on the order of 5-10%. Europe’s biggest economy, Germany, struggled with industrial stagnation and the market was down slightly. 
 

Interest rates fall, bonds rebound as central banks pivot

A major development in the third quarter of 2025 was the pivot in monetary policy. After an aggressive rate-hiking cycle from 2022 to 2024 to combat inflation, central banks have now begun cutting interest rates as inflation pressures ease. In late September, the U.S. Federal Reserve cut its benchmark rate by 0.25% - the first reduction of 2025. This brought the federal funds rate down to roughly 4.0-4.25%, and it was a widely anticipated move. Fed officials justified the cut by noting signs of a slowdown in the labour market and economy (job growth has cooled and revisions showed the U.S. economy wasn’t as robust as earlier thought) even as inflation remains just under 3%. The Fed also hinted that further easing is on the horizon, which boosted market confidence that interest rates have peaked for now.

Bond markets welcomed the turn in policy. As interest rate expectations shifted downward, bond yields fell, and prices correspondingly rose. Globally, the picture was mixed but generally supportive for bonds. In Europe, political worries - such as a large budget deficit in France and uncertainty around fiscal policy pushed some European yields up, offsetting the general rate decline. 

New Zealand’s central bank cut its official rate by 0.25% earlier in 2025 and indicated more cuts could follow to support growth and it reflects a broader trend: from Asia to Latin America, the interest rate cycle has largely turned downwards as inflation comes under control. Lower rates tend to reduce borrowing costs for consumers and businesses, which can help economic activity and, in turn, support corporate earnings and company sharemarket valuations. However, central banks must balance this with the risk of inflation flaring up again. So far, their tone has been cautious: the Fed and others have signalled they will monitor data closely and adjust policy as needed.

Bottom line for interest rates and bonds: After a long period of tightening, we are now in a phase of monetary easing, which has been positive for bond investors. Bond prices rose this quarter as yields fell, providing relief and positive returns. For the first time in years, values of both shares and bonds are moving higher together, which is encouraging for diversified investors. Lower interest rates also make financing cheaper, which is generally supportive for share markets (it can boost sectors like housing and reduce pressure on high-debt companies). For the remainder of the year, the expectation of further mild rate cuts is a tailwind for markets - but investors should keep an eye on inflation risks (for example, any price spikes from oil or renewed tariffs) that could alter the course of central bank policy. Overall, the third quarter bond rebound reaffirms the value of holding fixed-income assets: bonds are back to providing income and diversification benefits when shares wobble, helping to smooth out portfolio performance.
 

Easing trade tensions and divergent commodities

The third major theme of the quarter was an improved geopolitical and trade environment, which lifted market sentiment globally. Earlier in 2025, fears of escalating trade wars weighed on investors - most notably in April, when the U.S. administration announced new tariff proposals on major trading partners. Markets initially dropped on that news. However, the third quarter brought signs of trade peace, or at least a truce. The U.S. put additional tariffs on hold for 90 days, opening the door for negotiations. This pause in trade hostilities greatly calmed investors. By May and June, it became clear that the worst-case trade war scenarios would likely be avoided, and both sides sought compromises. In fact, this quarter saw some tangible improvements: the U.S. and China extended their trade truce, avoiding new tariff escalations. The easing of trade tensions boosted growth forecasts in both the U.S. and China and removed a major overhang of uncertainty from the markets. This was a key reason why investor confidence surged mid-year, fuelling the share market rebound. 
 

Outlook - cautiously optimistic going forward

Looking ahead to the remainder of 2025 and beyond, the overall outlook for investment markets is cautiously optimistic. The strong performance year-to-date has been supported by fundamental improvements and policy shifts that may carry into the final quarter of the year. Monetary policy is now on an easing track: further interest rate cuts from the Fed are anticipated over the next 6-12 months, and other central banks, like New Zealand, may follow suit. These lower rates should continue to support share valuations (as financing costs fall, and economic growth gets a boost) and provide a favourable environment for bonds (since falling yields push bond prices up).

That said, it’s important to stay aware of risks. Markets have rallied strongly and are somewhat “priced for perfection” at these new highs, meaning any negative surprises could cause a pullback. If inflation were to flare up again (for instance, due to higher commodity prices or rising wages), central banks might slow or pause their rate cuts - an outcome that could unsettle both shares and bonds. There is also the possibility of economic growth slowing more than expected.

On balance, however, the positives appear to outweigh the negatives in the current outlook. Inflation is on a downward trajectory in most regions, interest rates are likely to drop further, and the corporate earnings outlook is stable. As always, diversification will remain important: having a mix of asset classes - particularly across shares and bonds, and across international markets, which can help manage any bumps in the road. 

By staying diversified across asset classes and regions and focusing on your own financial goals and risk tolerance, you’ll be better positioned for whatever the future brings. The key message of the past quarter is stay informed, stay balanced, and keep a long-term perspective to help navigate the markets ups and downs. 

If you have questions about your investments, savings or retirement plans, please contact your financial adviser or AMP for a little help.