Market Commentary Q3 | 2025
In Review
The 3rd quarter provided a welcome reprieve from the market volatility over the summer as investors embraced the Goldilocks backdrop of optimistic growth expectations and dovish Fed expectations. The business cycle slowdown has continued as expected, but recession risks look minimal while monetary and fiscal policy easing accelerate. The S&P 500 returned 8.1% in the 3rd quarter as AI enthusiasm, the resumption of the Fed easing cycle, and benign inflation readings have bolstered sentiment. Outside the U.S, international equity markets turned in strong quarters, as well, with both EM equities and Japanese equities returning 11%. European equities have been the notable laggard in this global equity rally after a strong start to the year, but there is some room for catch-up if the market gains more confidence in the roll-out of the German fiscal expansion and governance fears in France remain at bay. The impact of U.S. tariffs still looms over the growth outlook as cyclical growth pricing is robust across assets and it is likely the worst of the tariff impacts are likely to be felt over the next 3-4 months. Additionally, softness in the labor market poses a key risk to the outlook should conditions deteriorate significantly.