Market Perspectives Q3 2025

Trade policy has dominated the start of the year, with stock markets moving lower, then higher, primarily a function of tariff developments. While stocks have rallied off April lows as policy overhang has abated, the full economic implications of current policy remain unclear. Positive earnings and share buyback announcements have helped underpin investor sentiment, though stock market concentration remains a concern, underscoring the importance of portfolio diversification. Bond yields have trended lower on the back of moderating economic growth expectations and an increased likelihood of Fed rate cuts.

The full economic impact of tariffs remains uncertain, though it is expected to result in a short-term moderation in economic growth and an increase in inflation. 2025 GDP growth is expected to grow 1.5%, down from expectations of over 2% earlier in the year, but improved recently as some policy uncertainty has subsided. The labor market appears to be moderating, which may put downward pressure on consumer spending. On the other hand, increased adoption of artificial intelligence (AI) bodes well for productivity.

Inflation is expected to rise through the end of 2025 before declining in 2026, though it is expected to remain above the Fed’s 2% target. With this backdrop, we believe the Fed will pay greater attention to its employment mandate and is likely to begin cutting rates in the face of a slowing labor market, albeit at a measured pace.

We are positive on the long-term outlook for stocks, though we anticipate some moderation in returns relative to recent strength. International stocks trade at a discount to the U.S. market and may be supported by fiscal and monetary policies. Current bond yields are relatively attractive, with many of our preferred bond funds yielding mid- to high-single digits. Moving forward, we believe alternative strategies may offer attractive risk-adjusted return potential.

To learn more, please review our Quarterly Market Perspectives.