As the leaves change and we head into the final months of 2025, markets continue to show remarkable strength. The third quarter saw US equities push to new all-time highs, with the market’s resilience remaining as the defining story of the year. Despite a steady drumbeat of headlines surrounding the federal government shutdown, renewed trade and tariff disputes, and delayed economic data, investors found reassurance in robust corporate earnings, broad sector participation, and the Federal Reserve’s first rate cut of the cycle in September. The S&P 500 rose 8.1% for the quarter, while the Nasdaq Composite gained 11.4% and the Dow Jones Industrial Average advanced 5.7%. Small-cap equities, represented by the Russell 2000, also surged 12.4%, returning to record highs for the first time since 2021. International equities joined the rally, with the MSCI ACWI ex-US Index climbing 6.9% amid strength in both developed and emerging markets. Fixed income also rebounded, with the Bloomberg US Aggregate Bond Index rising 2.0% for the quarter, supported by moderating inflation and renewed confidence following the Fed’s shift toward easing. This broad-based strength reflects a market that continues to climb the proverbial “wall of worry,” discounting near-term gloom in favor of confidence in economic durability and a soft-landing scenario.
The federal government shutdown has now entered its third week, and its effects are becoming more visible to everyday people. Many nonessential federal offices have been shuttered, and critical reports from agencies such as the Bureau of Labor Statistics and the Census are delayed. Treasury officials have admitted that the shutdown is starting to dampen economic momentum as businesses and consumers wait for updates that should already be public. Meanwhile, markets have shown a degree of patience; in past shutdowns, investors often viewed them as temporary disruptions rather than long-term issues. Because official data isn’t available, market watchers are leaning heavily on private signals, such as credit card usage, foot traffic at stores, app mobility trends, and internal company metrics, to get a sense of consumer behavior and business activity. So far, these alternative indicators suggest that consumer spending is holding steady and many firms are carrying on with plans. However, if the shutdown continues, the risks increase. Delay in payments to federal contractors, paused regulatory approvals, frozen grant funding, and postponed infrastructure contracts will begin to ripple outward. In communities that rely on government payrolls or federal spending, we may begin to see real impact on those economies.
The third quarter underscored that optimism can thrive even amid uncertainty. From renewed tariff measures and geopolitical tensions to soft housing indicators, waning inflation momentum, and the complications of an extended federal shutdown, 2025 has presented no shortage of challenges. Still, markets powered higher as investors leaned into earnings strength, rate cut expectations, and hopes for cyclical recovery. Sector performance was broad and healthy; cyclical sectors outpaced defensive ones, with Technology, Communications, and Industrials among the leaders. Utilities and Financials also posted solid gains, while traditional defensive sectors like Consumer Staples and Healthcare lagged but remained positive on the year. This shift from a pure mega-cap tilt toward more balanced leadership signals renewed confidence in depth and capital investment across the market.
The Federal Reserve’s 25-basis-point rate cut in September marked a formal shift toward easier monetary policy, and the updated projections now suggest there could be two or more additional cuts before the end of the year. In the days around that decision, bond markets reacted quickly: the 10-year Treasury yield moved up toward 4.1%, while the 2-year yield hovered near 3.5%, reversing some of the earlier flattening in the yield curve. For investors, this means borrowing costs are starting to come down, which can help support areas of the economy such as housing, autos, and business investment. Sectors that depend heavily on credit, such as real estate and homebuilding, have already seen renewed interest as lower rates make financing a little easier. Historically, the first rate cut in a new cycle has often been followed by stronger stock performance in the following year, provided that inflation remains contained and the economy avoids a sharp slowdown.
The broader capital markets also gained momentum during the quarter. Confidence has been gradually returning to deal-making, with companies once again pursuing mergers and acquisitions after a quiet start to the year. Initial public offerings (IPOs) also picked up, particularly in technology, healthcare, and clean energy. Many businesses saw the Fed’s rate cut as a green light to move ahead with financing plans that had been on hold. Credit markets, which had tightened earlier in the year, also showed improvement: companies issued new bonds at more favorable rates, investors returned to high-quality debt, and refinancing activity accelerated.
Tariff and trade tensions have resurfaced, however, as a meaningful risk for markets. The US has threatened to impose 100% tariffs on Chinese imports beginning November 1, contingent on Beijing’s actions. Meanwhile, China has expanded controls on rare-earth exports, adding new elements to its list of restricted materials and tightening licensing requirements. These are moves that could reverberate through technology, defense, and clean-tech supply chains. There’s also friction in trade channels where the US and China have begun imposing port fees on ocean carriers, a dynamic that raises costs across shipping routes. Taken together, these developments push the trade narrative from latent risk to active front-runner in macro uncertainty, highlighting the importance of supply chain flexibility and domestic diversification.
As we enter Q4, our outlook remains constructive. Underlying fundamentals still lean toward gradual expansion, earnings momentum, easier policy, and broadening participation, but increasing risks cannot be ignored. A prolonged shutdown, sharper-than-expected tariff pass-through, or a rebound in inflation could all challenge the current narrative. In this environment, disciplined positioning, sector diversification, and liquidity flexibility remain key. Volatility remains as a defining feature in today’s market. Daily swings in both equities and bonds have grown sharper as investors react to changing expectations around monetary policy, trade tensions, and fiscal uncertainty. Rather than viewing this turbulence as a sign of instability, we see it as a reflection of markets adjusting to a new phase of the cycle, one that blends optimism over policy support with anxiety over near-term data gaps. Our investment approach remains grounded in discipline: maintaining balanced allocations, focusing on quality balance sheets, and staying nimble enough to capitalize on opportunities as they arise. Periods of heightened volatility often separate reactive moves from strategic ones, and our commitment continues to be on the latter.
As always, we appreciate the trust and confidence you have placed in our Firm. We are incredibly proud of our recent recognition and certainly could not have achieved it without all of you. We’re deeply grateful for the relationships we’ve built with each of you, as they form the foundation of our success.
Joseph P. Biondo
CEO, CIO & Portfolio Manager
Sources: Index returns – Nasdaq, State Street Investment Management, Mesirow; Government shutdown – Reuters, Washington Post; Market statistics – Nasdaq; Economic data – Reuters, Federal Reserve
The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.
Third Quarter 2025 Market Commentary
Joseph P. Biondo
As the leaves change and we head into the final months of 2025, markets continue to show remarkable strength. The third quarter saw US equities push to new all-time highs, with the market’s resilience remaining as the defining story of the year. Despite a steady drumbeat of headlines surrounding the federal government shutdown, renewed trade and tariff disputes, and delayed economic data, investors found reassurance in robust corporate earnings, broad sector participation, and the Federal Reserve’s first rate cut of the cycle in September. The S&P 500 rose 8.1% for the quarter, while the Nasdaq Composite gained 11.4% and the Dow Jones Industrial Average advanced 5.7%. Small-cap equities, represented by the Russell 2000, also surged 12.4%, returning to record highs for the first time since 2021. International equities joined the rally, with the MSCI ACWI ex-US Index climbing 6.9% amid strength in both developed and emerging markets. Fixed income also rebounded, with the Bloomberg US Aggregate Bond Index rising 2.0% for the quarter, supported by moderating inflation and renewed confidence following the Fed’s shift toward easing. This broad-based strength reflects a market that continues to climb the proverbial “wall of worry,” discounting near-term gloom in favor of confidence in economic durability and a soft-landing scenario.
The third quarter underscored that optimism can thrive even amid uncertainty. From renewed tariff measures and geopolitical tensions to soft housing indicators, waning inflation momentum, and the complications of an extended federal shutdown, 2025 has presented no shortage of challenges. Still, markets powered higher as investors leaned into earnings strength, rate cut expectations, and hopes for cyclical recovery. Sector performance was broad and healthy; cyclical sectors outpaced defensive ones, with Technology, Communications, and Industrials among the leaders. Utilities and Financials also posted solid gains, while traditional defensive sectors like Consumer Staples and Healthcare lagged but remained positive on the year. This shift from a pure mega-cap tilt toward more balanced leadership signals renewed confidence in depth and capital investment across the market.
The broader capital markets also gained momentum during the quarter. Confidence has been gradually returning to deal-making, with companies once again pursuing mergers and acquisitions after a quiet start to the year. Initial public offerings (IPOs) also picked up, particularly in technology, healthcare, and clean energy. Many businesses saw the Fed’s rate cut as a green light to move ahead with financing plans that had been on hold. Credit markets, which had tightened earlier in the year, also showed improvement: companies issued new bonds at more favorable rates, investors returned to high-quality debt, and refinancing activity accelerated.
As we enter Q4, our outlook remains constructive. Underlying fundamentals still lean toward gradual expansion, earnings momentum, easier policy, and broadening participation, but increasing risks cannot be ignored. A prolonged shutdown, sharper-than-expected tariff pass-through, or a rebound in inflation could all challenge the current narrative. In this environment, disciplined positioning, sector diversification, and liquidity flexibility remain key. Volatility remains as a defining feature in today’s market. Daily swings in both equities and bonds have grown sharper as investors react to changing expectations around monetary policy, trade tensions, and fiscal uncertainty. Rather than viewing this turbulence as a sign of instability, we see it as a reflection of markets adjusting to a new phase of the cycle, one that blends optimism over policy support with anxiety over near-term data gaps. Our investment approach remains grounded in discipline: maintaining balanced allocations, focusing on quality balance sheets, and staying nimble enough to capitalize on opportunities as they arise. Periods of heightened volatility often separate reactive moves from strategic ones, and our commitment continues to be on the latter.
As always, we appreciate the trust and confidence you have placed in our Firm. We are incredibly proud of our recent recognition and certainly could not have achieved it without all of you. We’re deeply grateful for the relationships we’ve built with each of you, as they form the foundation of our success.
Joseph P. Biondo
CEO, CIO & Portfolio Manager
Sources: Index returns – Nasdaq, State Street Investment Management, Mesirow; Government shutdown – Reuters, Washington Post; Market statistics – Nasdaq; Economic data – Reuters, Federal Reserve
The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.