As we head into autumn and look back at the year thus far, it's extraordinary to see that the S&P 500 Index has now risen by more than 30% since Trump's “Liberation Day” back in April. The NASDAQ composite, meanwhile, has gained around 41%. And here in the UK, our domestic market index – the FTSE 100 – has rallied by some 20%.
Overall, the major developed markets in the US, the UK and Europe have all recorded or approached new all-time highs. These have been driven by strong corporate earnings, improving sentiment and some easing of the trade tensions that spooked the financial markets at the end of March and early April. This euphoria and bullish sentiment have fuelled concerns that irrational exuberance and momentum-driven trading are behind this market rally, and that such levels are not sustainable over the shorter term.
“Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria” – Sir John Templeton
In the US alone, the bull market has made anyone who owns stocks significantly richer. A recent US Gallup poll revealed that 62% of Americans were invested in the stock market at the end of 2024. That’s the highest level since the end of 2008. One might easily conclude that the bull market is having a significant positive effect on the wealth of US consumers who own shares in the market, and this more than offsets the debts resulting from rising delinquency rates on loans.
As of the end of the first quarter of 2025, US households reputedly owned US$46.7 trillion in equities and mutual funds. The Baby Boomers held 54% of that total. That makes them the richest retiring generation in US history. Nevertheless, many US consumers still have moderate incomes and face economic constraints, resulting in a mixed picture of wealth across the US consumer base. The US consumer economy is therefore reliant on its wealthiest segment for spending power.
But the expectation is that they will spend more of their retirement assets and transfer a larger portion of these assets over to their children and grandchildren (while they are still alive), and to their descendants after they have passed away. And many of them are still seeing their net wealth increase thanks to the bull market in stocks.
The US economy grew faster than was initially reported in the second quarter of 2025: the Bureau of Economic Analysis revised gross domestic product (GDP) upwards to an annualised rate of 3.3%, up from the previous estimate of 3.0%. This revision was driven by stronger consumer spending and investment, mainly due to intellectual property and equipment offsetting weaker government spending and higher imports. This surprising increase comes on the back of a 0.5% contraction in the first quarter, bringing the first-half growth rate up to a modest 1.4%.
But there is concern among US consumers
Recent US consumer confidence data does reveal a slight dip in August. This reflects growing unease over the labour market, inflationary pressures and the consequences of President Trump’s sweeping tariffs. This decline is the eighth consecutive month of deteriorating sentiment and with consumer spending powering nearly 70% of US GDP, this data gives rise for some concern.
So what will the autumn months bring? At the annual Jackson Hole conference, Fed chairman Jerome Powell all but confirmed that the central bank will lower interest rates in September. Over the summer months, the jobs data showed that hiring slowed and prices rose: US payroll growth averaged 35,000 a month from May to July, while inflation nudged up from 2.4% to 2.7% year-on-year. The tariff pass-through (the degree to which changes in import tariffs affect final product prices for consumers or businesses) showed up most clearly in goods, even as cheaper gasoline capped the headline print numbers.
Jerome Powell’s message has been consistent: if inflation expectations stay anchored, the Fed won’t overreact to tariff-driven bumps in the road and will keep a close eye on the labour market, where both demand and supply have cooled. At the Jackson Hole summit, Powell essentially doubled down on that: “the balance of risks appears to be shifting”, with downside risks to employment rising. So the Fed won’t let one-off price moves drive policy.
The financial markets summer rally has been impressive, with August marking a fourth consecutive month of gains. But investors’ resolve might be tested in September and October. An insatiable appetite for AI and growing expectations of lower interest rates ahead have combined to fuel investors’ cravings for a “risk on” approach, “buying on the dips” and maintaining a high level of exposure to growth stocks.
Historical patterns point to a bumpier ride over the coming months, even though the underlying fundamentals remain positive for equity markets. But the broader trends remain intact, allowing investors the prospect of broadening their investment focus to beyond the US. In fact, so far this year the MSCI World Index excluding the US has delivered a gain of 11.6%, while the MSCI World Index has only risen by 4.5% (in sterling terms). And with a seasonal pause most likely ahead, investors will have a valuable moment to review and prepare for the next leg of this investment cycle.
While AI demand is still fuelling strong corporate earnings growth for the tech stocks, shifting expectations around the Fed’s next move on monetary policy is driving a healthy rotation towards some of those overlooked areas of the US equity market.
Interest rate-sensitive small-cap stocks surged in August – their best month of relative outperformance versus the S&P 500 in nine months. Across various sectors, automotive, airlines and homebuilders all posted strong gains, while the equal-weighted S&P 500 reached new highs, signalling a broader market participation.
Similarly, some of those markets outside of Wall Street’s domain have attracted positive investor sentiment over the past eight months: the UK, Europe, Japan and the Emerging Markets have all delivered some healthy returns.
With expectations that the central banks will remain accommodative over interest rates, inflationary pressures will become more favourable, corporate profits will rise and tariffs will become manageable. Under such circumstances, further realistic gains are not impossible. Any healthy pause in the markets will allow stocks to digest their recent gains. This should be viewed as a further buying prospect for long-term investors – they might consider a more expansive investment opportunity set, which would provide further portfolio gains.
