IN BRIEF
- The Federal Reserve restarts rate cuts and signals more to come
- Goldilocks environment returns with Emerging Markets leading
- Gold continues its shine with new highs
For information purposes only. Any views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
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The month of September
Goldilocks returns! Over September we saw a backdrop where most asset classes (such as shares and bonds) moved together, with low levels of volatility.
It has been a while since this occurred, with the summer months dominated by rising equities (company shares) and falling government bond prices (the cost of lending to governments). Yet the month of September provided a favourable backdrop for positive moves across both asset types.
In equities the main driver was interest rates in the United States (US). The Federal Reserve (Fed) met market expectations with a cut of -0.25% and indicated the potential for further reductions. The S&P 500 Index rose 4.0%, ahead of UK and Japanese markets, but behind the main European, Asian and Emerging Market Indices.
With the S&P hitting all-time highs, it was noteworthy that Trump’s son-in-law delivered the biggest private market takeover of a company in history. Electronic Arts (EA), known for games such as FIFA & SIMs, agreed to a private acquisition worth $55bilion which is 25% above its market capitalization (the total value of a company’s shares on the stock market). This suggests that large-scale deals are still possible in this environment.
As a note, the Fed has two main points of focus: the labour market and inflation. In September, the jobs and employment data showed no major surprises, supporting the view that a stable growth environment may be returning. In addition, inflation showed some signs of potential upward pressures but remained in line with expectations, which helped maintain market confidence. We believe there is potential for future inflation readings to trend higher following the impact of tariff agreements (trade-related taxes), although this may not occur until later this year or early next.
On the last day of the month, the US government experienced a shutdown for the first time in seven years. While this reflects ongoing political disagreement, it also means there will be limited US economic data being released until an agreement is reached. In a period where Central Banks and investors rely heavily on incoming data to guide decisions (known as being ‘data dependent’), this could lead to greater uncertainty and a requirement for higher risk premiums (which puts pressure on asset prices) until there is a resolution. When this last occurred in 2018, the shutdown lasted for 30 days.
This backdrop has influenced the performance of the US dollar. The currency has remained reasonably stable in recent months, but earlier weakness has helped support Emerging Markets.
As a result, the MSCI Emerging Market Equities Index rose by a staggering 7.4%, with MSCI Latin America Index up 7.0%, with the potential to work more closely with the US government. Additionally, China reported more positive economic growth indicators, driven by expectations the government will continue to stimulate the economy, which could have a knock-on effect across the rest of Asia.
In Europe, the French returned to familiar budget discussions with the election of a new Prime Minister. However, this did not disrupt service and manufacturing surveys that remained positive, though they did lose some of their summer momentum. In the United Kingdom, focus has shifted to the upcoming November budget, where the Chancellor is being challenged to rein in the fiscal deficit (the gap between government spending and income) while also supporting economic growth. These two challenges continue to weigh on bond and equity sentiment. This saw the MSCI Europe ex UK Index rise 2.6%, while the MSCI UK Index only managed a more modest gain of 1.6%.
Across fixed income markets, the start of the US interest rate cutting cycle continued to support returns from Emerging market debt (bonds issued by developing countries). However, the biggest rally came in UK inflation-linked bonds. Their sharp move signalled investors’ belief that the UK government will spend to support the economy. In so doing, this has the potential to keep inflation elevated, which may put pressure on the UK consumer.
Finally, a strong performer over the quarter was gold. This precious commodity benefitted from rate cuts, continued Central Bank purchases, and its role as a hedge against inflation and a safe haven during concerns over rising government budget deficits in most G7 countries.
Key positioning
- The prior quarter changes occurred on the 10 April, coinciding nicely with the low point of the equity stock markets so far this year.
- We have maintained our asset allocation weightings in portfolios after adding to European equities and taking some profits from UK and Japanese investments at our April allocation change.
- Within our fixed income investments, we maintained our preference for higher quality corporate bonds and broader government bond exposures.
- We continue to run the allocations from our end of July rebalance with our next scheduled Committee meeting to be convened toward the end of October.
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©Premier Miton Investors. 2025. Issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.