We present our Multi-Asset Research Team’s Investment Committee Review – Outlook Q3 2025.
This report reflects both our ongoing research and dedicated effort to establish macro and asset-class insights to guide asset allocation and portfolio construction for client portfolios.
The executive summary can be found below and we invite you to read the full report for more context into the work that underpins our investment decisions.
Executive Summary: Investment Committee Review – Outlook Q3 2025
Q2 2025 Review
Global equities rose by 11.7% in Q2 2025, supported by easing US financial conditions and positive global liquidity, while core bonds also saw modest gains. Despite these market advances, economic data in the US continued to moderate amid trade policy uncertainty from the new Trump administration, signaling a potential ongoing slowdown in growth. Inflation remained subdued, with recent data showing further cooling and raising the possibility of hitting the Federal Reserve’s (Fed) 2% target by year-end, especially if oil prices stay low and demand weakens due to tariffs. Meanwhile, earnings expectations are softening, labor markets are cooling and global trade tensions are increasing uncertainty, highlighting the importance of diversification in navigating this late-cycle economic environment.
Q3 2025 Outlook
Diversification continues to be the name of the game in portfolio allocations, in our view. Inflationary pressures seem to be abating, and if the economy continues to soften, we could see easing from the Fed in 2025. We continue to favor higher quality equities, Real Estate Investment Trusts (REITs) and fixed income, and are relatively cautious in the commodities sector given the softening macroeconomic backdrop.
Equities
Equity markets began Q2 2025 with a tariff-induced selloff but quickly rebounded after President Trump announced tariff relief, driving major indexes to record highs. Momentum stocks—especially in tech and banking—led the rally, while investors largely overlooked macro uncertainties in favor of strong earnings and stability in large-cap, high-quality names. International equities outperformed US markets, supported by a weakening dollar, rising global stimulus and improving capital flows, with emerging markets benefiting from soft oil prices and shifting trade dynamics. Looking ahead, tariff policy remains a key risk, but selective opportunities are emerging in cyclicals and health care, as defensive positioning and global macro shifts create potential for diversified upside.
Fixed Income
Bond markets delivered solid returns in Q2 2025 and year-to-date, supported by slowing economic growth, evolving fiscal policy and shifting views on the inflationary impact of tariffs. While early fears of tariffs driving inflation concerned the Fed, markets now see them more as growth inhibitors, contributing to demand for inflation-protected and defensive fixed income assets. The Fed remains positioned for potential rate cuts later in 2025, especially if labor and inflation data continue to moderate, while fiscal uncertainty—particularly surrounding US policy—remains a key risk. In our view, investors should focus on selectively increasing duration in higher quality credits and avoid overweighting treasuries.
Real Estate
REITs posted a slight decline of -0.93% in Q2 2025, though one-year returns remained solid at 9.20%, with strong performance from sectors like Specialty, Data Centers and Infrastructure offsetting weakness in Industrial, Residential and Health Care. Sector returns diverged as economically resilient areas outperformed more cyclical ones, reflecting investor preference for stability amid a slowing economy and weaker consumer spending. While market volatility is expected to persist due to macroeconomic uncertainty, improving fundamentals, stabilized valuations and historically attractive earnings, yields suggest a constructive outlook for REITs moving forward.
Commodities
Commodities declined in Q2 2025, with the Bloomberg Commodity Index down 3%, led by an 11% drop in energy prices due to new tariffs and oversupply concerns, while precious metals gained 5% as investors sought safe havens. Industrial metals were flat overall, but copper surged late in the quarter on news of a likely 50% tariff, highlighting growing concerns over trade policy impacts on industrial inputs. The broader commodity outlook remains negative, as weak global growth, ongoing tariff uncertainty and unfavorable structural conditions continue to weigh on demand and sentiment. While a partial tariff rollback remains a possibility, the risk of delayed or intensified trade measures and rising input costs suggest a persistently volatile and stagflation-prone environment for commodities.
Private Markets
This quarter we initiate coverage of private markets, with a focus on performance drivers and key considerations for advisors. Currently, private market assets total $18.7 trillion and are projected to grow to $24.1 trillion by 2029, over twice as large as the $10.2 trillion US exchange-traded fund (ETF) market in size. We highlight key trends in the space, including robust mergers and acquisitions (M&A) activity, stable valuation multiples and signs of a fundraising rebound. While deregulatory signals from the current administration may support market expansion and broader access, ongoing trade uncertainty and tariff risks pose potential headwinds to global private market momentum.
Important Disclosures & Definitions
Bloomberg Commodity Index: an unmanaged index used as a measurement of change in commodity market conditions based on the performance of a basket of different commodities. One may not invest directly in an index.
Real Estate Investment Trust (REIT): companies that own or finance income-producing real estate across a range of property sectors. Listed REITs have characteristics of both the income potential of bonds and growth potential of stocks.
AAI000975 08/05/2026
