Nutmeg investor update: October 2025

At a glance:

• The Federal Reserve resumed interest rate cuts in September after a nine-month pause, driven by weak US jobs data. Markets expect further cuts by year-end, but are watching inflation
• European markets faced challenges. France experienced a credit downgrade during the month, while the UK held rates steady amid persistent inflation
• Global equity markets performed well in September, and both government and corporate bonds also saw positive returns

One of the most significant events in September was the Federal Reserve’s decision to resume interest rate cuts after a pause of more than nine months.

While this move was widely anticipated — especially following comments from Fed Chair Jerome Powell at the annual Jackson Hole symposium in August — overall, the confirmation of the rate cut was well received by markets. The Fed’s decision was influenced by several factors, but underwhelming US jobs data over the summer provided especially strong support for restarting the cycle of lowering rates.

Looking ahead, markets currently expect another two rate cuts by the Fed by year-end, and possibly one or two more next year, which would bring interest rates down to around 3–3.5%. While the job market remains the Fed’s primary focus, it’s important to remember that controlling inflation is still part of its mandate. If inflation were to re-emerge as a concern in the coming weeks, the pace of rate cuts could be at risk, which would likely unsettle markets.

Elsewhere, not all the news was positive. In Europe, France faces political uncertainty and high levels of debt, which led to a credit rating downgrade and impacted its bond market. In the UK, after the Bank of England delivered a rate cut in August, it held rates steady in September, as stubbornly high inflation—particularly in the services sector—remains a challenge. For the Bank of England to lower rates further, we’ll need to see inflation data come down meaningfully.

What did all this mean for markets?

September was generally a good month for what we call 'risk assets', meaning equity markets performed well globally. US and emerging market equities led the way. Technology stocks, which make up a significant portion of both US and emerging market indices, were key drivers of this positive performance. European equities also advanced, supported by strength in industrials, while UK stocks lagged somewhat.

Both government and corporate bonds had a positive month. UK government bonds or 'gilts' have faced a tough 2025, especially those due to mature much further into the future. However, they stabilised in September. Corporate bonds benefited from the positive tone in government bonds and a general appetite for risk. US investment grade spreads remain near record lows, reflecting the modest extra yield investors are demanding for holding corporate debt over government bonds.

Another notable development was the stabilisation of the US dollar, despite the Fed’s rate cuts. The dollar has been under pressure for much of 2025. Its steadiness in September could have important implications for other asset classes, and may be particularly positive for emerging markets, as well as overall portfolio performance.

Portfolio changes

We have maintained the 'pro-risk' stance we have had since May and June, supported by increased certainty on US tariffs, with uncertainty appearing to recede following the so-called ‘liberation day’ announcements. This positioning - reflected mainly in our equity overweight - has been beneficial. In September, most of our portfolios delivered positive returns across investment styles and risk levels.

Looking ahead, we remain comfortable with this view on risk. We’re seeing encouraging signs on the macroeconomic front, especially in the US, where growth remains robust and may even accelerate in the coming months. While market valuations — particularly in the US — are elevated for both equities and credit, valuation alone is a poor predictor of short-term returns. We believe the upcoming US earnings season is shaping up to be supportive for stocks. Although September and October have often been challenging in the past, with historically higher average volatility compared to the rest of the year. We haven't seen this pattern this year, with a positively trending market with limited volatility. In fact, the investment team is more inclined to potentially increase risk further in the coming weeks rather than reduce it.

About this update: All figures, unless otherwise stated, relate to the month of September 2025.

Sources: MacroBond, Nutmeg and Bloomberg.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.