The summer rollercoaster in financial markets underlined their inherent unpredictable nature, and we now see them as having entered a transition phase typically characterised by higher uncertainty. As a result of this turbulence, the third quarter of the year saw the sharpest drawdown in equity markets, and volatility levels briefly approached 2020 levels.

During the quarter, the unwinding of crowded positioning flipped market leadership on its head, with Japan giving back gains on a stronger yen, hurting the export-dependent stock market. Leading segments of growth and technology stocks also saw the largest pullback between July and August, while Chinese equities rebounded in September on the back of stimulus measures announced by China’s central bank.

In the west, the UK’s Bank of England announced its first rate cut in five years, bringing the Bank Rate to 5.0% from a high of 5.25%. The Federal Reserve (Fed) also cut its rate by 0.50%, taking market participants by surprise. The market view, currently reflecting a soft-landing backdrop, remains unchanged from the previous quarter of the year. Recessionary fears continued to ease, and inflation has moved closer to central banks’ targets, with a potential to undershoot in the Eurozone. As a result, investors started pricing in meaningful reductions in policy interest rates.

In cutting rates, the Federal Reserve opened the door to its policy ‘normalisation’ with the acknowledgement that current borrowing costs remain restrictive, and Fed Chair Jerome Powell commented, “we concluded that this was the right thing for the economy and the people we serve.”

The latter half of the quarter proved a positive period for Chinese equities after having underperformed for years considering a slow economic recovery from the pandemic and real estate woes putting a damper on returns. Recent rate cuts by western central banks may have accelerated China’s recent stimulus announcements, most of which involved cutting rates to arrest the continued decline in economic activity and to counteract the restrictive impact of the stronger renminbi (driven by USD weakness).

After the market rebounded from the low in August, we remain cautious on equities for the remainder of the year but still believe that the primary trend is upwards. We expect further volatility ahead as we approach the US election, and, whilst recent economic data has been weaker, most came off a high base, so central banks are standing watch, ready to respond with further interest rate cuts as necessary depending on the data.

As far as portfolio positioning is concerned, we are currently broadly neutral in our long-term strategic allocation, with a small overweight cash position reflecting our view of a slightly lower risk-reward outlook for the remainder of the year. Our positioning in equities continues to favour quality single stocks, focusing on companies with the financial strength and cash flows to weather the volatile macro environment. As we enter the final couple of weeks of the Q3 equity earnings season, we have seen better results out of the US than Europe so far, mainly driven by US stocks having less reliance on the Chinese consumer. Within fixed income, we remain cautious on high-yield, in favour of investment-grade corporate credit.

Turning to more domestic matters, much discussion in recent months has centred on what would be included in Chancellor Rachel Reeves’ Budget statement delivered at the end of October. In the preceding months, the Government repeatedly warned that there would be tough financial choices to come in order to balance public finances.

While the full impact of legislative changes will take time to percolate, this Budget represented the largest tax-raising exercise in recent memory to cover the black hole in state finances. A raft of changes to personal taxation were announced that will directly impact investors not just in the UK but also further afield. While a rise in employer national insurance contributions is expected to raise significant amounts for the Treasury, changes were made to capital gains tax, inheritance tax, and business asset disposal relief, among others, and the abolishment of the resident non-domiciled tax status was confirmed.

The announcements in this Budget are likely to have an impact on the wealth planning and structuring of many investors, and at times of upheaval, the initial reaction is often not the best-informed one. However, uncertainty does provide the opportunity to discuss the purpose and goals you have for your finances with partners, families, and a trusted adviser, as well as to assess matters in the context of your personal situation.

So, when changes that impact our lives occur, it is important to take a step back and remind ourselves of the bigger picture. If these changing times have made you consider a different approach, it may be time to consider seeking expert advice.

Alan Colquhoun is a director of Julius Baer International.