Q3 2025 Market Commentary

Markets usually slow in the third quarter, but this year was different. Stocks kept rising through July, August, and September, with the Dow finishing the quarter at a record high. The Federal Reserve made its first rate cut of the year, oil prices moved lower, and the U.S. dollar steadied after a sharp drop earlier in 2025. Even though the economy showed signs of cooling, markets held up well.1

Markets

Index gains and a subtle rotation

Stocks held firm and broadened their gains, with leadership extending beyond just the biggest names.2

  • Stocks: The S&P 500 and Nasdaq had their strongest third quarter since 2020, helped by a rare positive September. The Dow also set a record high at the end of September.3
  • Sectors: Technology continued to lead, but health care and financials also gained ground late in the quarter.4
  • Small companies: After lagging most of the year, small-cap stocks perked up in September on hopes for more rate cuts.2
  • Currency: The dollar strengthened slightly, which can affect U.S. companies that do business overseas.1
Economy

Cooling Jobs, Mixed Inflation

The economy showed mixed signals: job growth slowed, inflation stayed slightly elevated, and confidence weakened.

  • Jobs: Hiring slowed. July added about 73,000 jobs, August only 22,000, and private measures showed weak September results. Unemployment edged up to around 4.3%.5
  • Inflation: Consumer prices rose between 2.7%–2.9% compared with last year, still above the Fed’s 2% target.5
  • Confidence: Surveys showed Americans feeling less optimistic about jobs and the economy.6
  • Federal Reserve: The Fed cut interest rates by a quarter point in September, saying it remains cautious because inflation is still sticky while hiring weakens.6
Policy

Tariffs and Shutdown

Policy headlines added new uncertainty, from fresh tariffs to another government shutdown.

  • Tariffs: New tariffs announced Sept. 30: The Administration imposed 10% tariffs on lumber/softwood timber and 25% on kitchen cabinets and upholstered furniture, effective Oct. 14.7
  • Budget: Washington debates dragged on, and as of October 1, the government shut down. This paused some official reports like the monthly jobs data, leaving investors to rely on private surveys until the shutdown ends.8
Looking Ahead

What to Keep Watch On

Markets enter the final quarter balancing slower growth, a government shutdown, and continued Fed uncertainty.

  • Government shutdown: Federal funding lapsed on October 1, halting some data releases, including the September jobs report. Until agencies reopen, investors and the Fed are relying on private surveys, which can add volatility.8
  • Market Behavior: Stocks showed resilience early in October as investors anticipated further rate cuts if job growth stays weak. However, limited data could make short-term market reactions less predictable.4
  • The Fed: The Fed’s September rate cut marked the start of its easing cycle, but officials have signaled caution about moving too quickly while inflation remains above 2%. Markets expect another cut later this year, though the timing depends on how incoming data evolves.9
  • Earnings Season: Analysts forecast roughly 8% year-over-year earnings growth for S&P 500 companies, helped by strong technology results. Still, corporate guidance and consumer trends will be key indicators for Q4.10
  • Inflation and growth mix: Goods prices have stabilized, but services and housing costs continue to keep core inflation near 3%. Slower hiring could temper spending, leading to a more gradual path for policy adjustments.7
  • Energy and the Dollar: Oil prices have eased as global supply increased, offering modest relief to inflation. The U.S. dollar strengthened slightly in Q3 but remains lower for the year, which continues to affect multinational earnings.10
Market Environment Heading into Year-End

Market strength in the third quarter reflected a wider range of company and sector participation compared with earlier in the year. Broader gains and steadier volatility coincided with the Fed’s first rate cut of 2025, moderating inflation readings, and early signs of slower economic growth.

As the year concludes, markets remain sensitive to shifts in policy direction, labor data, and inflation trends. With certain economic reports delayed by the government shutdown, short-term reactions may vary as new information becomes available. The fourth quarter could be shaped by how quickly data normalizes and whether earnings and policy developments continue to align with expectations.

 

Sources:

 

Disclosure :

This overview presents a cautious interpretation of current economic indicators and their potential implications for investors. It’s important for investors to remember that market conditions are inherently uncertain and subject to change. The information provided here should not be considered as personalized investment advice or a prediction of future market movements. Investors are encouraged to consult with their financial advisor to discuss their individual financial situation and goals. A comprehensive investment strategy should consider the investor’s risk tolerance, investment time horizon, and any changes in economic conditions.

Investment Advisory Services offered through Trek Financial LLC, an investment adviser registered with the Securities Exchange Commission. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 25-322