Nutmeg investor update: September 2025
The Nutmeg team
4 min
August was a positive month for global stocks, with some US indices hitting record highs. Global bonds were more mixed, with yields on long-term UK government bonds moving higher. Our investment team explains what's been happening and why.
At a glance
- August was positive for many stock markets. Multiple US indices hit record highs over the month, with investors buoyed by encouraging US economic data.
- Bond markets had a more mixed month. US treasuries performed positively, but long-term borrowing costs for the UK government spiked.
- On the economic side, there are signs of recovery in Europe, with business indicators picking up.
- In portfolios, we made some adjustments to equity positioning, but our overall view hasn't changed significantly.
How are portfolios currently positioned?
We made a couple of adjustments to portfolio positioning in August, but our view hasn't changed that much overall. The key alterations were to equity positioning. We reduced our exposure to US equities, securing gains after a period of strong performance. We used the proceeds from that trade to build exposure to European financials, which we expect to benefit from a general economic recovery, aided by spending by some European governments.
Overall, our allocation to equities is still slightly higher than our long-term benchmark. We think US equities in particular are supported by the stability of the US economy, where consumer activity is strong and companies are generally in good health. On the other hand, we are happy to remain underweight UK equities, as we see the economic picture here as less encouraging due to a combination of limited growth and stubbornly high inflation. In the same vein, China's economy still looks too sickly, with its slowing economic growth and real estate sector issues. We therefore haven't changed our mind on Chinese equities, where we are still underweight.
In terms of fixed income positioning, our government bond exposure is roughly in line with our long-term benchmark. Major central banks have generally been lowering policy rates. And in the US and UK in particular, we think there is room for this to continue. But there are reasons to be cautious, namely whether the pace of wage growth and services inflation will continue to ease, as we expect them to.
What happened in financial markets in August?
Investors appeared to be in good spirits in the main, and the majority of equity markets gained over the month. The S&P 500, a major US equity index, reached new highs, as did the tech-focused NASDAQ index. Large cap UK and European equities also rose, albeit more modestly than their US counterparts. In bond markets, US government bonds gained, while UK government bonds declined.
What drove markets over the month?
The generally positive tone in US economic data, including slightly improved numbers on Q2 economic growth released at the month's end, helped to support US equity prices. US government bonds, meanwhile, were influenced by two particular – and arguably less encouraging – developments.
- Firstly, the month began with weaker-than-expected data on the US labour market. Fewer jobs were added to the US payroll in July than anticipated, while the previous month's data was revised downwards. The unemployment rate also ticked higher.
- Secondly, the month concluded with a speech by Chair of the Federal Reserve Jerome Powell who indicated that the US central bank believes that the balance of risks between inflation and employment may require further rate cuts.
Both of these points contributed to the strong performance of US Treasuries.
In the UK, the Bank of England enacted a quarter percentage point rate cut at its August meeting. As expected, the Bank lowered the official rate to 4% from 4.25%, despite some dissenters within the Bank's Monetary Policy Committee expressing concerns about inflation. The Consumer Prices Index – a key measure of inflation – rose in July, driven by food inflation and persistent strength in services prices.
This backdrop was less favourable for UK bonds compared to the US. Yields on long-term UK gilts, which reflect the government’s borrowing costs, have had a tough time so far this year. Although, their shorter-dated 10-year counterparts haven't moved a great deal. The Bank of England expects wage growth to slow further, and appears to be looking past short-term food and energy price increases, maintaining room for additional rate cuts.
In Europe, there are signs that an economic recovery is slowly gaining traction. Confidence and house prices are recovering across the continent, and business indicators are picking up. We believe the bloc's economy will be further supported by policy decisions, particularly moves from Germany – the world's third largest economy as per the IMF's April 2025 World Economic Outlook – to spend big on infrastructure and defence.
About this update: All figures, unless otherwise stated, relate to the month of August 2025.
Sources: MacroBond, Nutmeg and Bloomberg.
Risk warning
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.