Quarterly Market Insights: 3rd Quarter of 2025
Hello everyone, and welcome to our Q3 2025 Market Update!
We hope your fall season is off to a great start.
This quarter continued the positive trend from earlier in the the year. After the previous quarter giving us whiplash with all the ups and downs, the third quarter was much more subdued.
What Made Q3 2025 Stand Out?
While the 2nd quarter focused a lot of attention on tariffs and trade wars, inflation, and geopolitical tensions, the 3rd quarter focused on more positive economic data, corporate earnings strength, technology and AI continued momentum, and interest rate cuts. These all helped fuel a strong stock market in the 3rd quarter.
Tech and AI companies again led much of the growth in stocks. Other areas of the US markets were more flat. Valuations (stock prices compared to their earnings) still remain high. The economy has remained healthy but growth is slowing a bit. Consumer spending has cooled down and some companies are starting to trim hiring.
Q3 Performance Snapshot
- US stocks
- S&P 500: +8.1%
- Dow Jones Industrial Average: +5.7%
- Russell 2000 (Small Cap)- +12.4%
- International / Emerging Markets: Emerging markets outpaced developed foreign equities—Asia, China, and Latin America showed momentum.MSCI Emerging Market index was up 11% while developed markets were up 7.4%, as represented by the MSCI World Index
- Fixed Income: +2.04% as measured by the Morningstar US Core Bond Index.
Looking ahead to Q4 and beyond
- Stock valuations are still high (stock prices compared to their earnings). This means markets could be sensitive to any negative surprises like weaker earnings or unexpected news from the Federal Reserve
- Inflation continued to improve overall, though housing prices and services costs remain high. Because of that, investors will continue to watch the Federal Reserve closely. Many expect the Fed to start cutting rates again sometime in 2026 if inflation keeps moving lower.
- Political uncertainty and the government shutdown could have a negative impact on the economy
Key Takeaways
- Diversification matters. Smaller companies and international markets may continue to lead as global growth improves
- Bonds play an important role. Even with lower returns, bonds can help reduce risk and balance portfolios, especially in a falling interest rate environment.
As always, we continue to focus on balance and long-term planning. Markets change quickly, but staying disciplined and diversified remains the best path forward.
