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Economic Update September 2025

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Key Takeaways

1. Equity markets 

Valuations in the US are stretched with investors discounting risks to the economic outlook.

2. Fixed income 

Bond yields drifting with fiscal, economic and soft stagflation risks prompting lack of clear direction.

 3. Geopolitics

While current risks in the US have prompted a rotation into non-US and EM equities, we think this is a short term dynamic rather than a longer-term trend.

Risk assets in the US have scaled new highs despite the ongoing uncertainty regarding the economic outlook, core fixed income is struggling to digest competing themes. Investors are righty cautious about the US economy, leveraging geopolitical thematics near term to generate returns. Yet over the medium term the US economy and markets remain relatively attractive.

Global: US confidence misplaced or not?

 While uncertainty in the global economy remains historically elevated, equity markets have shrugged off post-‘Liberation Day’ jitters to surge ahead. Indeed, the news flow around tariffs continued to be incrementally “less bad”, which has helped many advanced economy exchanges post all-time highs. There’s also been tailwinds from negotiated trade deals, key trade deals delayed, renewed AI optimism and better-than-feared corporate earnings all contributing to the apparent optimism.

Also supportive was expansionary US fiscal policy that may provide an offset to tariffs in boosting the US economy, despite the question it raises around US fiscal sustainability. Even the bad news was viewed as good, with a deterioration in the soft data showing early signs of manifesting in the hard data as the US labour market begins to slow. This served to bolster expectations of rate cuts this year, supported by a relatively dovish speech by US Federal Reserve Chair Powell at Jackson Hole, viewed positively by markets. 

Further, mixed inflation data in the US has tempered concerns of a material tariff pass through at least in the near term. Investors seem to be discounting clear risks to the economic outlook and have pushed US equity valuations to historic highs and investment grade credit spread to near historical tights. While downside risks may not be as acute as they were we believe investors may have become too sanguine given the high level of uncertainty and potential for the environment to change quickly.

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Meet the authors

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Alex Joiner

Alex Joiner is Chief Economist at IFM Investors. He is responsible for the firm’s economic, financial market and geopolitical risk analysis that is key in IFM’s investment process. In this capacity he engages with IFM’s domestic and global clients on macro-investment trends and themes.

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Frans van den Bogaerde

Frans supports the Chief Economist with the firm’s economic, financial market, and policy analysis and forecasting. He holds a Bachelor of Commerce (Finance & Economics) with Honours in Finance (First Class) from the University of Melbourne.

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Chris Skondreas

Chris supports the Chief Economist with the firm's economic, financial market, and policy analysis and forecasting. He holds a Bachelor of Commerce (Economics and Finance) from Monash University.

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