Climbing the wall of worry

August and the last three months saw decent returns across various asset classes. 

Equity markets showed their ability to climb the “wall of worry” despite complex geopolitical tensions, trade policy developments and monetary policy uncertainty. 

Europe continued its strong run returning 9% over the period and remaining the top performing region over 2025. It benefitted from resilient economic activity on increased manufacturing and loan growth in August. 

UK stocks also performed well (+5.45%) despite a mixed economic backdrop. Looking more broadly, there were positive returns generated by other developed markets including Japan (+3.1%) and the US (+2.9%), while Emerging Markets and Asian equities posted gains of 4.5% and 3.1% respectively.

The macro-economic environment has evolved over the year as the initial shock of tariffs appears to be waning and markets take a less knee-jerk reaction to trade policy decisions made by President Trump. 

On the tariff front, there were a couple of developments over the period. In late July, the EU and US agreed to a 15% tariff on most EU exports which was higher than the previous average tariffs but lower than the threatened 30% and includes some exemptions.

The US and China extended their trade truce until November 10th, leading to a rally in Chinese equities. Conversely, the US imposed a crushing 50% tariff on Indian goods to punish the country for purchasing Russian oil.

While markets appear to be shrugging off tariff news, there is growing concerns that inflationary pressures are re-emerging at a time when the US economy is showing signs of slowing and deficit levels continue to grow. 

To add to this, political noise intensified after Trump’s firing of Federal Reserve Governor, Lisa Cook, fuelling debate on central bank independence. As a result, investors are demanding more compensation for holding longer-dated US Treasuries, even after the Fed has indicated a higher probability of future interest rate cuts. This has also led to growing demand for precious metals by both Central Banks and investors resulting in the gold price hitting all-time highs.

Returns across asset classes have been positive so far this year and it has been reassuring to see diversification has helped investors. 

However, looking forward there are a few things to note. Valuations in the US remain elevated, and tariff related uncertainties could reappear. At the same time potential macroeconomic volatility and geopolitical uncertainty are issues to be mindful of.  

Therefore, it is our conclusion that effective diversification is likely to continue to play an important role moving forwards.