Q3 Markets and Events
The S&P 500 index was up a very solid 8% in the third quarter of 2025. It pretty much went straight up with the exception of a minor 2.5% decline in late July. I think everyone is as surprised as we are by this relentless advance in the face of multiple economic and political challenges.
U.S. politics were once again big part of the news cycle in Q3. President Trump signed the Big Beautiful Bill into law on July 3rd (more on that later) as well as a number of tariff deals with the major trading partners. He also had a summit with Russia’s Putin in Alaska, followed by a flurry of diplomatic activity concerning the war in Ukraine. Although things seem to have gone quiet again diplomatically, but sadly not in Ukrainian cities. Charlie Kirk’s murder at a rally in Utah has ignited a firestorm of political division. And to cap it all off, the Federal government shut down on October 1st after the Congress failed to reach a compromise. It’s still too early to know how it all shakes out, but the political division is only getting worse with both parties blaming each other for the shutdown and trying to score points at the expense of the public.
Economic indicators have been getting softer in the last few months, particularly the employment situation. The president even fired the BLS chief (agency in charge of jobs data), who apparently couldn’t make things look positive enough. That, along with the assault on Federal Reserve governors (Lisa Cook in particular), makes many observers uncomfortable about the level of independence allowed to these agencies. After staying put since December 2024 (the past five meetings), Fed cut interest rates by 0.25% on September 17 and investors expect more cuts to come.
Corporate news was dominated by AI spending/deals and government getting involved in private companies (like taking a 10% stake in Intel).
Asset Classes
Literally EVERYTHING was up in the last quarter. Gold led the assets with another 16.6%, bringing 2025 gain to 47%. That’s the best return for this inflation/currency debasement play since the inflation-ravaged 1970’s! Small cap stocks had a nice rally catching up to their larger brethren. Emerging markets also rallied and are now up 29% YTD. Nasdaq and S&P indices weren’t far behind, while developed international stocks took a breather but still sport almost double the return of SPY on the year. Bitcoin is doing ok, although it’s been fairly rangebound for a while. Bonds, dollar and oil had respectable returns in Q3 as well.
Sectors and Stocks
On the industry/sector side, the only negative was consumer staples. Gold miners rocketed higher while homebuilders started to perk up in anticipation of lower mortgage rates. Variety of tech-related industries also rallied as did consumer stocks (which doesn’t mesh well with economic data).
Digging a little deeper, Exhibit 3 shows the best and worst performing stocks in the S&P 500 during the third quarter of 2025. The left section features top/bottom 5 names by dollar change in market value (and thus largest actual impact on the cap-weighted S&P 500 index). The positive side is dominated by giant tech companies that continue to get bigger. They jumped 20-40% in 3 months (!) and added almost three trillion dollars to their aggregate market cap. Just these five names accounted for 63% of the entire index gain last quarter. That’s very concentrated indeed. The negative side pales in comparison to the giant gains above with the five biggest losers only subtracting $192 billion or 4% off the index results.
The right section normalizes for the sheer company size and shows best/worst performers by percentage change in market value (as opposed to dollar change). On the positive side gaining an average of 94% during the quarter, we two media companies undergoing mergers, two hard drive storage companies and an advertising technology play. On the negative side the losses again are milder at 35% and feature two data research names, two health insurers and a car retailer.
International Markets
Foreign continued to do well this year, with at least 16 countries beating the U.S. in Q3 (Exhibit 4). Several countries in Asia (most importantly China) and Latin America are near the top as are Spain and Greece in Europe. Even Canada is faring better than us in our acrimonious trade row.
Tax Changes
On July 4th President Trump signed The One Big Beautiful Bill Act (OBBBA), which represents the most significant tax legislation since 2017. It made permanent many of the TCJA provisions that were set to expire at the end of this year, while introducing substantial new benefits. There are too many individual changes to discuss here, but the most important one for our clients is the new “Enhanced Senior Deduction” available to filers aged 65+ (max additional deduction of $6,000 per person). Our tax projection software has been fully updated to incorporate the new law, and we have been finding some attractive opportunities in our tax planning sessions this Fall.