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Markets enter the home stretch

1 October 2025

Mark Lister

The first three quarters of the calendar year are behind us, and investors have again been well rewarded for ignoring the noise and staying the course.

It’s been a cracking period for investors, despite the volatility.

World shares fell 16.3 per cent in the wake of President Trump’s tariff announcements in April.

This was an uncertain period, but those with the resolve to stay calm have enjoyed a 32.6 per cent rebound from those lows.

That’s seen world shares hit fresh highs, up 16.9 per cent from where they started the year.

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A few positive tailwinds have become more evident in recent months.

The global economy has proved resilient, earnings growth has come in stronger than expected, while concern over trade tensions has eased somewhat.

US tariffs are much higher than they were a year ago, but they aren’t as bad as the worst-case scenarios and at least we know where we stand.

An agreement between the US and China remains unresolved, with two consecutive three-month extensions to the deadline so far.

The latest of these will expire in mid-November, so that’s something to watch closely in the upcoming quarter.

An undesirable outcome could derail the upbeat tone, so let’s hope the reprieve reflects productive negotiations taking place behind the scenes.

We also saw the world’s biggest central bank cut interest rates for the first time this year.

The Federal Reserve was on hold for nine months, so one could argue this latest move was the first cut of a new cycle.

If that’s the case, it bodes well for the outlook, should history be a guide.

In the eleven rate cutting cycles since 1980, the S&P 500 was up in eight of them over the following 12 months, with an average return of 8.7 per cent.

When a recession was avoided (that’s been the case in five of those 11 occasions), the market was up 100 per cent of the time over six and 12 months (by an average of 10.8 and 17.4 per cent).

Every cycle is different, as is every economic and market backdrop, but history suggests you want to be invested when rates start coming down.

That’s especially so if the Fed is cutting into a relatively solid environment where a slowdown might be imminent, but not a recession.

It’ll be an eventful period in New Zealand too, and one that might even start with a 50-basis point OCR cut.

The Reserve Bank meets next week, and a cut of 0.25 per cent is assured.

There’s also a chance we see a larger 50-point cut, if the Bank chooses to act decisively and proactively.

Financial market pricing is only ascribing about a 20 per cent probability of that, but three of the five major banks are picking it.

If they’re right, we’ll head into Christmas with mortgage rates a touch lower and (hopefully) a pickup in confidence and activity.

For investors, there’s every chance markets finish the year in good spirits.

If the global economy remains resilient and corporate earnings continue to grow solidly, share prices are likely to remain buoyant.

We have seasonality on our side too, with this home stretch typically a positive period for global markets.

Since 1950, the December quarter has been the strongest of all for the S&P 500, with an average return of 4.5 per cent and an 80 per cent hit rate of positive returns.

If that’s the case again in 2025, let’s hope some of that optimism finds its way down under.

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Mark Lister

Mark Lister

Investment Director
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Market Insights enewsletter

Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.

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