It’s been a really strong quarter for investors! Share markets around the world shot up, many funds grew by more than 5%, and for the first time in years, both shares and bonds did well at the same time.
The main reasons? Interest rates are finally coming down, companies are making good profits, and while US tariff policy is still something to watch for its impact on growth and inflation, investors appear to be less worried about it now.
Share markets hit record highs
The third quarter of 2025 was one of the best we’ve seen in recent years. All three major U.S. stock indices hit new all-time highs, and markets around the world followed suit. This wasn’t just hype either – over 80% of companies that reported earnings beat expectations, making it one of the strongest earnings seasons on record.
Technology and AI companies led the charge, which makes sense given all the excitement around artificial intelligence. But it wasn’t just tech doing well. Most sectors saw gains, and international markets in Europe and Asia also rose, typically somewhere between 5-10% for the quarter. Germany was a bit of an exception, struggling with some industrial challenges, but overall the picture was very positive.
Interest rates are finally dropping
This is probably the biggest story of the quarter. After years of raising interest rates to fight inflation, central banks have started cutting them again. The U.S. Federal Reserve cut rates by 0.25% in late September, bringing rates down to around 4.0-4.25%. New Zealand’s central bank also cut rates earlier in the year, and more cuts are likely coming.
Why does this matter? When interest rates come down, borrowing becomes cheaper for everyone – from people getting mortgages to businesses taking out loans to expand. This generally gives the economy a boost and helps support share prices. Lower rates also mean bond prices go up (they move in opposite directions to interest rates), which is why bond investors finally got some good news this quarter after a tough few years.
The Fed made it clear they’re watching the data carefully. They noticed the job market cooling off a bit and the economy not quite as strong as initially thought, but inflation is hovering just under 3% and coming down. They’ve hinted that more rate cuts are on the way, which gave investors confidence that we’ve likely seen the peak of this interest rate cycle.
Remember all the worry about trade wars earlier this year?
Things have improved quite a bit. Back in April, when the U.S. announced new tariff proposals, markets dropped pretty sharply. But the third quarter brought much better news.
The U.S. put those additional tariffs on hold for 90 days to allow for negotiations, and both the U.S. and China extended their trade truce. This removed a major cloud of uncertainty hanging over markets. When investors aren’t worried about escalating trade conflicts disrupting global supply chains and economic growth, they’re more willing to buy shares. This shift in sentiment was a key reason markets rebounded so strongly.
Looking ahead to the rest of 2025 and into 2026
There are good reasons to be optimistic, though it’s always smart to stay a bit cautious. The easing cycle for interest rates is likely to continue, with more cuts expected over the next 6-12 months. This should keep supporting share valuations and providing a favourable environment for bonds.
Company earnings are holding up well, inflation is generally under control in most regions, and the trade situation seem to be improving. These are all positives that could carry the market rally forward.
That said, markets have gone up a lot and are sitting at record highs, so they’re somewhat “priced for perfection” as they say. Any negative surprises could cause a pullback. The main risks to watch are inflation potentially flaring up again (maybe from higher oil prices or rising wages), which could make central banks pause their rate cuts, or economic growth slowing down more than expected.
What should we learn from this?
The third quarter showed us that when several positive forces come together (easing monetary policy, solid corporate earnings, and improving trade relations) markets can perform really well. The fact that both shares and bonds went up together was particularly encouraging for anyone with a diversified portfolio.
The key is to stay on track and keep a long-term perspective. Markets will always have their ups and downs, but by staying diversified across different types of investments and different regions, you’re better positioned to weather whatever comes next. Focus on your own financial goals and risk tolerance rather than getting caught up in the daily market noise, and you’ll be in good shape for the long run.
