Recent Markets: Q3 2025
Stocks enjoyed robust growth during the past three months, with small-cap stocks, which are up roughly 12%, leading the U.S. markets. On a year-to-date basis the U.S. broad market is up 14%. Foreign markets year-to-date are higher, up approximately 25 – 30%. Overall, it has been a very good nine months for equity investors.
Bonds have also delivered positive returns this year, with intermediate-term U.S. bonds generally up 5–6% year to date. As a reminder, bond prices tend to rise when interest rates fall. The 10-year U.S. Treasury yield has declined from 4.58% at the start of the year to 4.16% as of September 30, and bond prices have appreciated accordingly. The most notable development this quarter was the Federal Reserve’s decision to cut the federal funds rate by 0.25%—a precautionary move aimed at supporting a potentially softening economy. As a result, money market yields have edged slightly lower and now sit just below 4%.
As we write this letter, the federal government remains shut down as the stalemate continues. Past shutdowns have had limited effect on the markets, and investors are betting that this time will be no different. That said, as stocks reach new record highs, we believe there are still meaningful risks one should not ignore.
Stocks often tend to “climb a wall of worry” as the old saying goes. Yet, sometimes those worries can lead to lower prices. Some of the concerns for investors include: stocks are expensive relative to historic metrics, the labor market appears to be weakening, inflation remains stubbornly above the Fed’s 2% target, and many believe that tariffs will ultimately become a drag on the economy.
On the other hand, there are reasons to be optimistic. Small caps have surged in recent months, suggesting a broadening of market strength. Corporate earnings reached new highs in the third quarter, with an estimated growth rate of 7.9% over the next 12 months, according to FactSet. AI is likely to ultimately deliver significant benefits to society. And the Fed appears ready to step in and support the economy by cutting rates, if need be.
Investing is not for the faint of heart, and this time is no different. For those of us investing for the long term, it’s important to capture market returns, like those of the past nine months, even when there appears to be significant uncertainty and reasons not to invest. When markets reverse, turning negative, we need to remember it is part of the cost for the generally higher returns stocks provide and a part of normal market cycles.
If we can help, don’t hesitate to contact us today!
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Past performance does not guarantee future results. Nothing contained in this communication may be relied upon as a guarantee, promise, assurance, or representation as to the future. Market conditions can vary widely, and market and economic events having a positive impact on performance may not repeat. No diversification or asset allocation strategy can eliminate investment risk, losses, or protect against loss in declining markets. All investments involve risk including loss of principal. Investing in fixed income securities (bonds) involves interest rate risk, credit risk, and inflation risk. Investing in stocks involves volatility risk, market risk, business risk, and industry risk. International investing involves additional risks including, but not limited to, changes in currency exchange rates, differences in accounting and taxation policies, and political or economic instabilities which can increase or decrease returns. Investors should consider the objectives, risks, and charges and expenses of an investment carefully before investing.
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