As the final quarter of the year gets underway, it is time to turn our attention to the key themes for the remainder of the year, as rising interest rates and politics drive the markets.
As recently as early August, stock market returns across different regions were nearly at the same level, with the exception of emerging markets, but differences have emerged over the past month. Measured in euros, the US has pulled ahead, especially compared to the eurozone. Although the US stock market has outperformed the eurozone, the difference in returns is mainly explained by the appreciation of the dollar, which has boosted the euro-denominated returns of US investments. Measured in dollars, the return differences are not as significant.
Meanwhile, the eurozone equity markets have not moved much in either direction, which has created a gap between the US and the eurozone. Emerging markets, on the other hand, have been in a league of their own throughout the year, as strong returns from Asia have lifted the entire emerging markets index.
However, now it is time to look ahead – the final quarter in the markets will most likely be shaped by these three themes:
In the fixed income markets, the past year has been predominantly downbeat, and the global rise in interest rates has shaken the markets since the summer. As a result, the returns on fixed income investments have remained modest. However, the increased interest rate also creates opportunities for a fixed income investor, and the running yield provides security regardless of future rate movements.
Equity markets have not been immune to rising interest rates either. However, this has barely been reflected in index returns, as strong earnings growth has offset the impacts of rising interest rates, and performance at the index level has remained positive.
The rise in interest rates has already affected the economy, and certain sectors, such as construction, have weakened significantly as a result. Since the beginning of 2025, private construction investments in the US have largely stagnated, except for data centres, which are being built at an accelerating pace.
In the grand scheme of things, the situation is still positive, as overall growth has remained strong, driven especially by the AI and technology themes. Thus, the rise in interest rates has not yet brought economic growth to a halt.
On the other hand, the sharp rise in the prices of both energy and many raw materials, such as metals and agricultural commodities, poses challenges. This may also negatively impact economic development in the longer term.
Another question relates to technology companies, which have taken on major debt to finance projects such as data centres. From a market perspective, a key issue is how rising interest rates will affect the growing debt burdens of tech companies and what impacts this might have on the broader economy.
The US midterm elections are scheduled to take place in November, with changes expected particularly in the balance of power within the House of Representatives. The Republicans have held the majority in both the House of Representatives and the Senate, but currently many polls predict a Democratic majority in the House. If that happens, significant changes in the country’s political landscape could be in store.
However, politics could play an even more central role in Europe next spring. Political turmoil has increased especially in France, where presidential elections will be held in April. Although the elections concern only France, politics is likely to be a central theme for the entire European economy due to polarisation and rising support for political extremes.
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