The equity market correction – was that it?

By Steve Brice, Global Chief Investment Officer

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09 Sep 2025  I  4 mins read

In late July, we started pointing to the risk of a period of consolidation or pullback in global equities. As if by clockwork, global equities started declining, falling almost 3% over the next week. However, since then, they have gone on to make new highs. This begs the question: ‘Was that it?’ What should investors do about it? The answer is clear for those still in retirement preparation mode: Stick to the plan rather than getting knocked off track by short term views.

There were three main reasons for our cautious short-term outlook in late July. First, our proprietary indicators were suggesting that aggregate investor positioning was quite crowded.

Second, we saw Q3 as a critical period from a macroeconomic perspective as we expected inflation to start moving higher as the impact of tariffs finally shows in the data.

Finally, we were heading towards a seasonally volatile period – which usually peaks in September/October.

So where are we today?

The good news is that our investor positioning indicators have normalised, suggesting the risk of a period of consolidation/weakness is lower than it was in July.

While most of the inflation data has accelerated and surprised on the upside over the past month, markets appear to be willing to look through this as the Fed is pivoting to potentially easing monetary policy in September.

This leaves us with seasonality. September and October are, on average, typically the worst months of the year for global equities but markets are not priced for this seasonality risk. U.S, equity market valuations are elevated, but more importantly, expectations for market volatility remain low across the board.

Currency and equity market volatility measures are pretty low, albeit far from extremes. Interestingly, though, this is most extreme in bond markets with the MOVE bond volatility index at the lowest levels since early 2022, just before the sharp sell-off in equity and bond markets that year.

So what does this all mean for the outlook?

In the short term, there remains a risk of a pullback in equity markets. If inflation were to move definitively higher, then this would raise the threshold of economic pain required for the Fed to deliver on current interest rate cut expectations and, thus, risk undermining sentiment in both equity and bond markets.  

However, our longer-term market model has actually become more bullish in recent months. From a fundamental perspective, an improvement in macro data points – positive economics surprises, recovering new orders and an increase in the earnings upgrades vs downgrade ratio – has supported this bullish equity market stance.

At the same time, our technical models remain bullish across most equity markets.

All this supports the view that any equity market pullback is likely to be short-lived and limited in scope. To put this in context, the maximum (peak to trough) drawdown between February and early April this year was 18.6%. This time, we believe any pullback is likely to be shallower around the 5-10% mark.

So what should I do?

The reality is that nobody knows for certain what is going to happen in the future. In our defence, at the beginning of the year, we argued that equity markets would end the year higher than they started, but that it would be a bumpy ride. Indeed, we felt we would likely see a 15-20% pullback in equity markets at some point during 2025, before the Trump put was deployed. This was spot on at the headline level, although it appears it was the sell-off in the bond market that worried the U.S. Administration more than stock market weakness.

What we do know is equity markets have a tendency to go higher and that equities have historically been twice as likely to go up as they are to go down over any 12-month period. Betting against these odds – delaying investments or, even worse, reducing your equity exposure – is extremely risky when it comes to long-term wealth accumulation.

Therefore, our advice to investors is to not get swayed too much by either market fluctuations or by bearish views in the market. Very few people expected a bear market in 2022 or a strong recovery in 2023. The best approach for an investor trying to accumulate wealth for their retirement is to methodically increase their investments every month.

A nuanced approach to this would be to slightly curtail the amount you invest at the moment. So instead of investing USD1000 a month, you might decide to invest USD800 a month instead. This achieves two things. First, if markets continue to go up, the level of regret you face is mitigated as at least you increased your investments slightly. Meanwhile, if markets do go on sale, then you can step up your investments with the excess cash in your bank account (assuming you did not spend it!).

This approach means that you cannot be perfectly right, but also you cannot be perfectly wrong. This is valuable as we know that timing the market, even for professional investors, is incredibly difficult.

In a nutshell, the key to success with this strategy is stepping up your investments when markets go on sale. Our experience from April, and previous bouts of market weakness, is that this is a rare trait for investors. When markets sell-off, the headlines are usually very negative and can scare investors away. However, the ability to keep your head while everybody around you is losing theirs, in my opinion, is the primary determinant of your success as an investor.

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