SustainAbility: Can equities rally further from here?

As we head into the final quarter of 2025, it’s fair to say there is a lot happening in the world. Despite geopolitical tensions remaining high, trade deals at a country and corporate level are being made and investment into Artificial Intelligence (AI) continues at pace.

Added to this, we have recently seen the first interest rate cut of the year in the US and we continue to see significant amounts of fiscal stimulus being pumped into major economies. All of these are reasons why global equity markets have rallied close to 40% from the April lows and represent one of the strongest periods of performance since the Covid and Global Financial Crisis recessions.

In periods of market strength, it is common to see elevated ‘animal spirits’ and risk-taking by investors

In periods of market strength, it is common to see elevated ‘animal spirits’ and risk-taking by investors – over the past three months we have seen a notable increase in corporate and capital markets activity including various M&A transactions. This has been combined with ongoing strength in alternative asset classes such as gold and crypto currencies, which partly reflects a rotation away from asset classes such as treasuries but also shows investor appetite for more speculative assets.

There are two primary debates which we think will dictate the future direction of markets. The first is the impact of the tariffs imposed by the US on its trading partners at both a country and company level. With history suggesting that trade deals typically take 5-7 years to be struck, we have been positively surprised with the speed at which trade deals and progress appears to be being made. We are hopeful that the recently announced trade deal with US pharmaceutical giant Pfizer provides some support to the healthcare sector which has been negatively impacted by tariff uncertainty.

Rarely a day goes by in markets without an announcement of a technology company committing to spend on AI

The second, and potentially more important, driver of markets is related to AI. Rarely a day goes by in markets without an announcement of a technology company committing to spend on AI and it is estimated that capex related to AI will be over $500bn in both 2026 and 2026 in the US. While the majority of this spend is coming from the enormous operating cash flows from the world’s largest technology companies, the numbers are increasingly large – it is logical to think that investors will demand to see a compelling return on this investment. As the amount of money being spent increases, the profit opportunity related to this spend must also increase. While we believe AI is a transformative technology paradigm shift and will forever change the way humans interact with computers, we are monitoring developments closely and being very selective in where we are exposed in our funds.

We manage these twin factors by ensuring our portfolios are appropriately diversified and resilient depending on how these debates turn out. We are finding attractively valued structural growth opportunities in a wide variety of sectors, geographies and in companies with different business models. These are fascinating times to be an investor.

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell.

The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change. Forward looking statements are subject to certain risks and uncertainties. Actual outcomes may be materially different from those expressed or implied.