Quarterly Market Sparks | Q3 2025
Talking Points for The Quarter That Was and for The Quarter Ahead
Executive Summary Sparks
- Last Quarter: The S&P 500 gained +7.8% in Q3, well above historical averages. U.S. stocks are now up +13.7% YTD, an impressive +34% rebound from April’s lows.
- The Quarter Ahead: The Fed resumed its rate-cutting cycle in September, with more cuts expected in October and December. What's happening in Washington DC, along with earnings season, housing data, and inflation reports will shape the next leg higher.
- Market Wisdom: A trend in motion tends to stay in motion—but the key is discipline. Don’t let short-term headlines (shutdowns, tariffs, or Fed debates) distract from long-term goals.
Sparks from the Quarter That Was
Market Performance
Despite plenty of reasons to step aside—tariffs, inflation concerns, labor market weakness, and even a government shutdown—investors who stayed invested were rewarded.
- Q3: S&P 500 +7.8% (second straight quarter well above average).
- YTD: +13.7% and +34.2% off April’s lows.
- Global equities: Emerging Markets (+27.7%) and international developed markets (+23.5%) both outperformed U.S. benchmarks.
Economic Data
- GDP: Q2 growth revised to +3.8%, best since Q3 2023 (though much of it was offsetting Q1 low GDP print), with the Atlanta Fed now tracking +3.9% for Q3.
- Jobs: August Nonfarm Payrolls disappointed at just +22k, with revisions making June the first negative reading since 2020. ADP payrolls also fell, highlighting labor market weakness.
- Inflation: Headline CPI rose +3.1% y/y, Core PCE +2.9%. While still above the Fed’s target, inflation hasn’t stopped them from cutting rates to support employment.
- Housing: New Home Sales surged +20% in August to 800k (fastest since Jan 2022), aided by falling mortgage rates back down to 6.34%.
Sentiment & Confidence
- Consumer sentiment: University of Michigan and Conference Board readings trended lower, reflecting persistent worries about jobs and inflation.
- Investors: AAII sentiment flipped back to bullish after weeks of bearish dominance.
Bond & Credit Markets
- Interest rates moved lower. In addition to the Fed’s cut, 10-year Treasury bond yields moved to 4.1% from 4.4% over the quarter.
- Credit spreads remained stable; bond volatility (MOVE index) fell to multi-year lows.
Sector Sparks
- Q3 leaders: Technology (+7.4% in August alone, semis up ~12%), Communications Services (+22.3% YTD).
- Laggards: Staples (-0.3% YTD) and Healthcare (+1.2% YTD).
Other Noteworthy Sparks
- Commodities shined: Gold +47% YTD (on pace for best year since 1979), Silver +60%.
- Oil: WTI stuck in the $60s, down -11% y/y.
- Dollar: Weaker by 2% and now down ~10% YTD, aiding international equities.
Sparks for the Quarter Ahead
- Economic Data: September CPI (due Oct. 15) and October jobs reports will guide Fed policy. Watch housing data closely—lower rates may continue to thaw the market.
- Fed & Policy: After September’s 25bps cut, two more are expected this year. The dot plot suggests a path toward 3% long-term rates, though political noise (calls for 1%) adds uncertainty.
- Markets & Earnings: Q3 earnings season will begin shortly, with consensus at +7-8% growth but revisions pointing higher. Another double-digit quarter, which I would expect, could push 2025 full-year earnings growth back above 10%.
Sparks of Market Wisdom
We remain in both a cyclical and secular bull market. Strong earnings momentum, improving technicals, and international tailwinds are all positives. But valuations are “fairly highly valued” by Powell’s own admission. Tech concentration has reached record highs, with the top 10 stocks making up nearly 39% of the S&P 500.
This is exactly when diversification and discipline matter most. A balanced 60/20/20 approach (and perhaps even a 50/25/25) —stocks, bonds, and alternatives—has historical support, especially in periods of fiscal dominance and financial repression.
The timeless lesson? Don’t get caught chasing performance or reacting to scary headlines. The best returns go to those who stay invested, stay diversified, and stay disciplined.
Quote of the Week
“Staying the same is going backwards.” — Roger Federer
Invest Well, Be Well.
Rusty Vanneman | rustysbridge.com
Listen to my podcast: Invest Well, Be Well