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![]() Whilst most of us will take a break over summer and try to “de-tune” out of work, markets were quite the opposite and decided not to take a holiday at all this year! While headlines cheered record highs in equities and gold, the underlying picture has grown more uncomfortable: weaker growth, stickier inflation, and gilt yields at multi-decade highs. In a world where equities, bonds and even safe-haven currencies can all fall together, investors need to be more selective than ever. |
By Jacob Shah, Partner and Priscilla Eastwood, Principal, LCP So, in the spirit of children in the UK returning to school these past few of weeks, here are the lessons from the summer – and where we see the best opportunities as autumn begins. Summer 2025 investment market review: growth, inflation and bond yields
Growth is softening
Inflation remains elevated
Government bond yields remained volatile, with attention shifting from monetary to fiscal policy as central banks near the end of their rate-cutting cycles. In the US, Trump signed his “Big Beautiful Bill” into law, which is expected to have a net negative impact on the country’s deficit. In addition, concerns over central bank independence resurfaced, helping to push longer-dated yields higher. Within the UK, 30 year gilt yields reached their highest since 1998, driven by inflation surprises, concerns over debt sustainability and structural supply-demand imbalances – a theme we have highlighted before here.
Dollar rebound fizzles out
Equities hit all time highs, with credit spreads tightening
Autumn 2025 investor priorities and portfolio strategies For liability based investors:
1. Rebalance inflation hedges
2. Review collateral sufficiency For all investors:
3.For some, consider reducing portfolio duration
4. Rebalance asset allocations to bank gains
5. Review equity portfolios
6. Consider alternative asset classes that are better protected in a stagflationary scenario
7. Review currency hedging policies
Source: Bloomberg. Global equities is the FTSE All World Series All World Total Return Index. Periods shown for each set of bars are: Financial crisis (30/09/2008 – 31/12/2008), Eurozone crisis (15/03/2012 – 04/06/2012), Taper tantrum (22/05/2013 – 24/06/2013), COVID-19 (01/01/2020 – 31/03/2020) and Liberation day (1/01/2025 – 15/04/2025). Results are based on a Sterling investor.
8. Shorten credit spread duration in portfolios
9. Diversify away from corporate bonds
Source: ICE and investment managers as at 30 June 2025. *This is the equivalent credit rating of the instruments, which tends to be three notches higher than the credit rating of the corporate.
10. Review net zero targets
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