End of Summer Market Outlook
As the summer holidays draw to a close, global markets have largely enjoyed a period of calm and steady performance. Volatility remained subdued through much of the season, with equity markets delivering solid gains, particularly in the US. That said, the rally was notably narrow in scope – dominated by a handful of mega-cap technology stocks rather than broad-based economic strength. With autumn on the horizon, we provide a formal review of the macroeconomic landscape and outline M&M’s perspective for the coming months.
This report retains references to our Compass and Atlas portfolios – our flagship factor-based MPS models – while keeping the focus firmly on the broader market context. The message remains clear: patience, discipline, and staying invested are vital, especially as the “summer calm” may soon give way to renewed market volatility.
Summer 2025 Market Review
Markets in summer 2025 exhibited a “Goldilocks calm,” characterised by low volatility and resilient equity returns. Major indices climbed steadily, supported by better-than-expected corporate earnings and hopes that central banks were nearing the end of their rate-hiking cycles. In the US, gains were led disproportionately by the largest technology names, masking more modest progress across other sectors.
Economic data remained mixed. In the US, inflation continued to ease but stayed above central bank targets. The Federal Reserve paused its interest rate increases, opting to monitor the cooling labour market. In the UK, inflation has been moderating and growth remains subdued. The Bank of England cut its base rate to 4.00% in early August signalling concern about slowing momentum despite inflation remaining above target. The European Central Bank also paused after a series of cuts, content to hold rates steady with inflation near its 2% goal. In China, growth forecasts slipped below target amid ongoing property sector weakness and the impact of renewed US trade tariffs. Despite these crosscurrents, the broad tone through the summer was one of cautious optimism.
Autumn Outlook: Awaiting Volatility and Opportunities
While summer was calm, history suggests autumn often brings a change in mood. August and September have long been associated with increased market volatility, and we expect a similar pattern this year. Several factors could catalyse a more turbulent backdrop:
Central Bank Policy: Having shifted from hiking to holding, central banks are now debating when and how much to cut. The Fed is monitoring inflation and employment closely; the BoE has moved pre-emptively; and the ECB is watching data carefully. Any unexpected persistence in inflation could delay cuts, while a sharp slowdown could accelerate them.
Economic Data and Earnings: The next wave of employment and inflation releases will set the tone. Corporate earnings remain healthy but valuations are elevated in some markets, leaving little room for disappointment. Weak results or cautious corporate guidance could trigger outsized reactions.
Seasonal and Technical Factors: Liquidity typically shifts as market participants return from summer and reposition for year-end. September, in particular, has historically been one of the weakest months for equities. Some volatility is therefore both possible and, importantly, normal.
Despite these potential headwinds, we view volatility not as a threat but as a source of opportunity. Pullbacks can allow disciplined investors to add quality assets at more attractive valuations. Our base case remains moderate global growth with easing inflation – a supportive backdrop for diversified portfolios – though we are mindful of the risks posed by geopolitics and trade.
Compass and Atlas Portfolios – A Factor-Based Approach
M&M’s Compass and Atlas portfolios are built on a factor-based MPS model. This means they harness the long-term drivers of returns – value, momentum, quality, and low volatility – in carefully balanced proportions. Each factor performs differently across cycles; by combining them, we aim to deliver consistent outcomes and smooth the ride through diverse conditions.
This summer, the portfolios remained resilient. While the US market’s rally was highly concentrated in a few large technology companies, our diversified, factor-based exposure allowed us to participate without undue concentration risk. The portfolios held their ground, balancing equities, high-quality fixed income, and selective alternatives. As we look to autumn, the portfolios remain positioned to withstand potential volatility, with diversification and factor tilts providing both downside protection and long-term opportunity capture.
In short, rather than chasing momentum or reacting to headlines, our process ensures discipline. Compass and Atlas are structured to weather a transition from summer calm to autumn turbulence – and beyond – by relying on factors that have historically rewarded patience and diversification.
Staying Invested: Patience as a Virtue
The temptation during volatile periods is to retreat, but history is clear: missing even a handful of the market’s best days can significantly harm long-term returns. The best approach is to remain invested, diversified, and focused on one’s financial objectives.
For clients in Compass and Atlas, this means trusting the process. The models are designed to navigate uncertainty by maintaining factor exposure and broad diversification. Volatility is inevitable, but it is also where disciplined investors gain an edge. Our role is to ensure portfolios remain resilient and aligned with long-term goals, rather than reacting emotionally to short-term noise.
Conclusion
As summer gives way to autumn, the global economy sits at a crossroads – with inflation moderating but not yet conquered, growth steady but uneven, and central banks weighing their next moves. Markets have enjoyed a calm season, but history and data suggest volatility could rise as we head into autumn.
Mitchell & Mitchell’s message is one of cautious optimism. We expect volatility, but we also expect opportunity. By staying invested in factor-based Compass and Atlas portfolios, and maintaining discipline through the cycle, investors can navigate both the calm and the storm. The summer calm has been welcome; the autumn winds may test us. But with patience, diversification, and a long-term outlook, portfolios remain well placed to deliver progress toward client goals.
Sources
Reuters – Investors shore up defences as volatility index hits lows, June 2025
Ninety One – From undervalued to unmissable: UK’s revival, June 2025
Reuters – BoE’s long unwinding road, August 2025
Bank of England – Monetary Policy Summary, August 2025
ECB Economic Bulletin – July 2025
Bloomberg / Livemint – Fed independence faces political pressure, August 2025
Reuters – Upbeat ECB keeps rates steady amid tariff pinch, July 2025
Reuters – Trade talks stall as US tariffs loom, July 2025
Reuters – Taiwan conducts largest-ever military drills, July 2025