Global financial markets were quiet in the 3rd quarter of 2025….in a good way. The US stock market, as measured by the S&P 500 index, posted 23 new all-time highs in Q3, while seeing a daily decline of over 1.00% just once over that 3-month span (compared with 21 such daily declines over the first 6 months of the year). The S&P 500 index gained 7.79% in Q3, trailing the tech-heavy NASDAQ Composite Index which advanced 10.54% as the AI-driven technology rally propelled that sector from last place after Q1 to the top of the sector rankings YTD.
Remarkably, long-suffering small company stocks led global equities in Q3 with a 12.24% climb in the Russell 2000 index. The rally was fueled by traders’ long-awaited hopes for the Federal Reserve to commence an interest rate-cutting cycle, which came to pass at its September meeting. Small companies’ profits benefit more directly than large companies from lower financing costs, so this rally could stall if the Fed doesn’t follow through with additional rate cuts as anticipated going forward.
International stock markets, particularly emerging markets, posted strong gains in Q3, and gold rose to all-time highs while advancing 16.6%. The Bloomberg Aggregate US Bond index also gained 2.06%, making all the major asset classes winners for the quarter.
History offers multiple reasons to be wary of the relative quiet in the stock market. Some of the most brutal bear markets ever recorded began in the wake of extended advances amid muted volatility as stocks traded into over-valued territory. Over-valuation versus every common metric and model has persisted in US stocks for almost the entirety of the post-COVID era. When or how valuations will return to normal is anyone’s guess; but Mr. Market has never failed to remind those who believe “it’s different this time” that it’s not - so investors experiencing euphoria over their 401(k) balances are urged to curb their enthusiasm and lower their expectations going forward.
Important Disclosures
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Market data provided by JPMorgan Asset Management and MarketWatch.com.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.