Global market views from Johanna Kyrklund, Schroders’ Group Chief Investment Officer

As we head into the final quarter of this year, it’s instructive to look back over the trends that have unfolded as we expected, and those that have come as a surprise.

US economic growth has held up well, as we anticipated, and this underpins our positive view on equities. Some recent labour market data has been soft, but wage growth is still solid and the level of layoffs is low.  We continue to view the risk of US recession as being low. As we’ve said before, expansionary fiscal and monetary policies are supportive of equities, as long as the bond market is stable (more on this later).

Gold has been our preferred choice of diversifier and this is another trend that is playing out as anticipated. Gold offers protection against concerns over government debt sustainability and central bank independence.

We also expected a broadening out of equity returns and, while the US remains dominant in technology, we have seen markets outside the US attract attention due to their relative value, such as China for example, which has been the best performing market this year. Geographical diversification has been helpful this year.

So for now the “populist playbook” is intact. Benefit from higher nominal growth by owning equities and own gold as the diversifier. However, we need to recognise that some of these trends are now extended and there are a few clouds on the horizon:

First, the equity market is becoming increasingly bifurcated into AI winners and losers and we are seeing some signs of froth in the market. The AI bulls will point to unprecedented capital spending. At the same time, even AI leaders are talking about bubbles, technology is now 40% of the S&P 500 and a rising share of AI capex is debt-funded.

We have repeatedly argued that this risk needs to be managed at stock level and our stockpickers still like the hyperscalers while monitoring the capex binge closely for any signs of deterioration in returns. This vigilance is particularly warranted given the high weight of some of these stocks in the index. I know I am biased, but I am concerned about passive exposures to this space given the high level of stock specific risk.

Second, I am concerned about the extent to which President Trump may be undermining the independence of the Federal Reserve. The Fed has recently turned more dovish, cutting interest rates in September and signalling more cuts to come. Trump has made no secret of his desire for lower rates, and it could be that monetary policy is eased beyond what is warranted by economic conditions. The risk is that this stokes inflation in 2026, especially as companies will also be passing on the cost of tariffs to the consumer

The third worry is the sustainability of government debt. So far, the overall level of yields has been contained but we are seeing some signs of increased volatility at the longer end of yield curves in countries such as France, the UK and Japan.

In France, yields for some French corporates have fallen below those for French sovereign bonds. It’s a sign of the times that luxury goods group LVMH is seen as a safer bet than the French government. We need to continue to monitor the impact of populist policies on bond markets, particularly if inflation picks up again in 2026.

Investing is never easy, and there are signs of over-exuberance in AI, but we stay constructive on equities as we expect growth to be positive and interest rates, for now, are low.

Public markets asset allocation views from our Multi-Asset investment team

Equities (+) +

At the start of the quarter, we were positive on the outlook for equities. Although uncertainty over tariffs persisted, we continued to see a low probability of a near-term recession in the US. Consumption data was resilient and supported by low energy prices and a stable labour market, which together provided a solid buffer against external shocks.

However, tariff rates started to trend above our baseline scenario, and unreliable labour data was making it more difficult to assess the impact on the consumer, which was increasing the risk of near-term growth surprises. Inflation risks were also mounting due to fiscal stimulus, political pressure on the Federal Reserve (Fed), and potential tariff passthrough. Against this backdrop, we downgraded equities to neutral.

Whilst payroll data in the US has continued to deteriorate, broader measures of employment have remained positive. This has led to a repricing of interest rate cuts from the Fed. While we still believe that the risk of recession in the US is low, we recognise that the Fed is leaning in a more dovish direction than we had previously expected. This implies lower real yields, which, combined with decent corporate earnings and looser fiscal policy, resulted in an upgrade of the outlook on equities to positive at the end of the quarter, with a preference for US and emerging markets.

Government bonds (0) -

We started the quarter with a neutral stance on government bonds. While yields had risen and valuations had improved, medium-term concerns remained due to increasing debt levels and lingering inflation risks in the US. We subsequently downgraded our outlook on government bonds to negative mid-quarter. The recent rally after weaker-than-expected US payroll data has pushed valuations into more expensive territory. The risk of inflation also continues to be mispriced by markets.

Commodities (0) 0

We have retained our neutral view on commodities overall. Over the quarter, we maintained our positive stance on gold, despite its recent strong performance. We continue to see gold as a valuable diversifier in an environment of policy volatility, fiscal fragility, and growing investor uncertainty regarding the long-term role of Treasuries and the US dollar. We upgraded our view on energy to neutral. Additional buying from China to build inventories has kept the market balanced. However, further supply increases from OPEC and non-OPEC countries could push the market into surplus.

Credit (0) 0

We maintained a neutral stance on credit throughout the quarter. The cyclical backdrop has remained positive on the growth side, supporting corporate earnings and fundamentals. Overall, fundamentals are stable and debt costs appear to have peaked. Financials’ earnings have also been strong, which is a supportive factor for investment grade credit. However, valuations remain expensive relative to historical levels, so we remain on the sidelines for now.

Read our full views, including our perspective on private markets and sustainable investing, here.