The third quarter of 2025, ending 30 September, has seen gains for most equity indices around the world. The continued momentum behind artificial intelligence (AI) and the materialisation of a long-anticipated interest rate cut from the US Federal Reserve contributed to the positive momentum.
The S&P 500 index of large-cap stocks and the tech-heavy Nasdaq climbed in July and August as big tech companies reported strong earnings for the second quarter. This trend continued throughout September as technology companies committed to investing additional hundreds of billions of dollars into AI silicon chips and software.
An outsized chunk of S&P 500 performance was driven by four mega-cap stocks – namely Alphabet, Meta, Microsoft, and Nvidia – which, between them, account for about 22% of the S&P 500’s market capitalisation and about 64% of 2025’s performance. The S&P 500 Equal Weight Index, which gives every company in the S&P 500 the same importance, regardless of market cap, gained about half of the market-cap weighted index for the quarter and the year to date.
Fed’s cut elevates markets
The Fed’s long-awaited interest rate cut in September galvanised sectors outside technology and raised the prospect of a wider rally. In the same week as the cut, the Dow Jones Industrial Average and Russell 2000, which have far lower tech exposure, also crested to record highs.
In conjunction with the interest rate cuts in the US, there was a gradual ‘normalisation’ of trading relationships between America and the rest of the world. While US President Donald Trump has recently vowed to impose additional tariffs on sectors such as pharmaceuticals, trade tensions have eased dramatically since their “Liberation Day” induced lows of April.
Globally, indices such as the Nikkei 225 had a good quarter, while emerging markets shone, with the MSCI Emerging Market Index gaining, spurred by solid growth in China and Brazil and occurring despite a pullback in Indian equities. This standout performance has followed years, if not decades, of disappointing returns from emerging markets equities in general as an asset class.
The dollar strengthened 0.74% versus the basket of peer currencies tracked in the DXY but is still 9% weaker for the year-to-date. The weaker dollar is helping to drive many of the dynamics we are seeing unfold in 2025, such as the rise in the gold price to new record highs and the above-mentioned emerging markets’ resurgence. (We have a separate article in this Quarterly Update that explores the rise in the gold price and its future prospects.)
JSE shines amid global tailwinds
On the South African front, the JSE continued its strong run of 2025. As has been the case throughout the year, the gold and platinum prices were almost the only drivers of the All-Share Index during the third quarter.
The booming precious metals market helped the rand to gain 2.46% against the dollar for the quarter, even though the greenback strengthened slightly against developed market currencies. The rand ended the quarter at R17.27/$, which is stronger than the fair value of R17.55/$ suggested by our currency decoder.
More rate cuts ahead?
Looking ahead to the last quarter of the year, markets are anticipating at least one, and possibly two, more interest rate cuts from the Fed as it tries to balance supporting the labour market with controlling inflation. This could help drive continued momentum in emerging markets and AI, as well as broaden the rally beyond big tech.
Investors are attuned to risks such as ongoing geopolitical instability, sticky inflation, and unresolved trade tensions. While big techs are still grinding higher, some analysts question whether valuations are stretched. Potential shocks, such as an unfavourable inflation read or poor results from one of the big mega-cap stocks, could derail markets.
When it comes to South Africa, the JSE and rand have benefitted from supportive global conditions. However, performance is largely related to cyclical factors, especially the prices of gold and platinum. South Africa’s currency and markets remain vulnerable to both external shocks and internal political instability.
Despite the initiation of several commissions (the Madlanga Commission being the latest), a national dialogue, and even a Presidential economic war room, we see no signs of the bold reforms needed to reignite growth. This can be seen by the diametrically opposed year-to-date performances of ‘SA Inc.’ stocks in 2025, with sectors such as Retailers and Consumer Discretionary well down and Banks and Life Insurers gaining only 5% and 1.6%, respectively. Political instability may grow in the run-up to the 2026 local elections and the 2027 ANC elective conference. The global opportunity set being much broader and significantly more compelling than the domestic universe, are additional reasons that support our bias to offshore markets.
Lastly, in line with the trends we have seen in global markets, and as outlined in our piece on the changing definition of quality, we began the process of realigning our global house view funds during August and September. Notably, we have substantially reduced our traditional quality exposure and increased our weighting to broad indices such as the MSCI World, while ensuring that we are not relatively underweight to the technology sector on a look-through basis by holding a technology ETF.
‘Satellite’ exposures to sectors such as emerging markets, gold, and AI are currently being evaluated for future inclusion in both our house view funds and client portfolios, while there remains a case for the retention of traditional quality funds where that philosophy still resonates with certain clients.
