BIS Quarterly Review, September 2025

Markets shrug off trade conflicts

Global financial markets maintained a risk-on tone during the review period, shrugging off concerns over mounting tariff and policy uncertainty. Despite short-lived bouts of volatility triggered by incoming data and political developments, market sentiment remained upbeat, defying mounting challenges, including unease over the longer-run fiscal outlook in several key jurisdictions.

Equity markets in particular delivered strong returns, led by US stocks, which reached all-time highs. Large cap technology stocks outperformed, buoyed by enthusiasm around artificial intelligence (AI) and strong earnings, despite high valuations. Japanese stocks also posted gains. After having rallied earlier this year, European stocks remained flat, on the back of relatively weaker earnings growth. As is typical during risk-on phases, the rally was accompanied by subdued volatility, with the VIX receding. Credit spreads remained compressed and declined to lows not seen in a decade in spite of default rates ticking up.

The views expressed here do not necessarily reflect the views of the BIS member central banks.