Throughout 2025, global markets faced challenges due to fluctuations in monetary policies and an uncertain economic environment. Though there has been volatility across markets, particularly in the United States, the overall picture shows that Europe is recovering from a difficult start to 2025.
Risk assets extended gains in Q3, supported by resilient macro data and improving sentiment across global markets. The MSCI World Index (euro-hedged) rose 7.0% in the quarter, bringing YTD returns to 13.3%. After a strong start to the year for European equities, Q3 saw a reversal in regional leadership, with U.S. equities outperforming: the S&P 500 gained 7.9% in Euro terms, compared to Europe’s more modest 3.5%, as growth and large-cap tech continued to lead. Emerging Markets outperformed, led by China.
US inflation data confirmed a modest reacceleration in price pressures. Core PCE, the Federal Reserve’s preferred inflation gauge, climbed to 2.9% y/y, marking the fourth consecutive monthly increase and remaining above the central bank’s inflation target. The government shutdown has raised concerns about institutional stability, though the economic impact is expected to be limited. We expect US core inflation to peak (around 3.0%-3.5%), with slowing economic growth and a cooling labour market limiting second-round effects. As a result, the Federal Reserve is likely to resume cutting policy interest rates to support economic activity. Chair Powell’s Jackson Hole remarks were consistent with this, emphasising stable inflation expectations and a labour market not tight enough to drive wage inflation. Markets currently price in 25–50 bps of cuts by year-end and around 100 bps over the next 12 months, which we view as reasonable. Whilst we expect inflation to continue to increase this year in the US, the Fed is increasingly of the view this is a one-off price increase, so is focusing more on offsetting weakening growth and labour markets. US and global growth looks likely to moderate over the second half of 2025, but the combination of monetary easing and supportive US and German fiscal spending should aid a rebound in economic activity into 2026. In our view, this sets up a constructive backdrop for financial assets as we move into 2026.
Bond markets remained stable. U.S. Treasury yields were broadly unchanged, while euro curves steepened modestly. The ECB held rates steady at 2.0%, following cuts earlier in the year. The Federal Reserve delivered its first rate cut in September, lowering the policy rate by 25 basis points to 4.25%, in response to signs of slowing growth and moderating inflation. Markets now expect a gradual easing cycle into year-end.
Alternative assets delivered steady gains, with hedge funds and high yield credit supported by carry and low volatility, while real assets such as global infrastructure and REITs benefited from stable cash flows and improving investor sentiment.
In this environment, the Pensions Caixa 2, F.P. Fund has achieved a positive return of 4.1% in 2025. The annualized return over 5 years stands at 6.4%, above the target of 5.0% and the 3.5% CPI, demonstrating consistent performance against both indicators. Compared to other pension funds in the Employment System and the Associated System, the Pensions Caixa 2, F.P. Fund remains among the top 5% of funds over 5 and 10 years in Spain. This solid performance reflects an investment strategy that continues to generate long-term value consistently.
In conclusion, the Pensions Caixa 2 Fund has continued to demonstrate favourable progress, achieving returns above the established objectives, despite market volatility. This performance reflects the success of an investment strategy that continues to deliver consistent long-term value. The outlook for 2025 and beyond remains positive, with dynamic markets that will continue to respond to monetary policies and global economic adjustments. Despite short-term volatility, the medium and long-term projections remain favourable for investors with a diversified strategy.