The third quarter of 2025 delivered strong and broad-based gains across U.S. equity markets. These results were supported by solid corporate earnings, stable macroeconomic conditions, and a more accommodative Federal Reserve stance.
Ameriprise estimates U.S. GDP grew by +2.8% in Q3, driven by resilient consumer spending and limited impact from ongoing tariff developments. Corporate earnings were a key source of optimism, with Q2 results exceeding expectations and Q3 forecasts pointing to continued strength—especially in the Information Technology sector, which is projected to grow earnings by +20% year-over-year.
However, there are reasons for caution. Inflation remains stubbornly high, particularly in services, with the Fed’s preferred measure (core PCE) still above its 2.0% target. August data showed signs of disinflation stalling. Labor market data also softened, with slower job creation and downward revisions to prior payroll gains—though the unemployment rate held steady.
Trade policy added complexity, with new tariffs, legal challenges, and shifting negotiations. While markets largely shrugged off these developments in Q3, risks remain elevated heading into Q4. The Supreme Court is expected to hear arguments on reciprocal tariffs in November, which could have implications for trade-sensitive sectors.
Valuations are another area of concern. The S&P 500’s forward price-to-earnings ratio is approaching historically high levels, leaving less room for downside surprises. Companies will need to deliver on elevated profit expectations to sustain momentum. Within Big Tech, investors are increasingly scrutinizing capital expenditures and monetization timelines, especially around AI initiatives.
Despite these challenges, we remain cautiously optimistic. Historical seasonality favors Q4performance: when the S&P 500 is up year-to-date through Q3—as it is now (+14.8%)—Q4 has historically delivered average gains of +4.4% to +6.1%, with a high probability of positive returns. Investor sentiment is constructive but not euphoric, which could support further gains if fundamentals remain intact.
As we enter the final quarter of the year, we encourage clients to maintain diversified portfolios focused on high-quality assets and companies with durable cash flows and competitive advantages. Following healthy earnings and strong margins continues to lead us to large cap growth and technology. Within technology, emphasis will remain on firms with proven AI monetization strategies and recurring revenue models. Volatility may present opportunities to add to quality holdings, especially if markets experience short-term stress.
Thank you for your continued trust. Please reach out with any questions or to discuss your portfolio in more detail.
**all financial statistics and economic summaries are from IRG Before the Bell – 10/3/2025
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