Q3 2025
If I had to describe the first three quarters of this year in one word, it would be “resilient.” We’ve been on a bit of a rollercoaster—from the nervous anticipation in Q1 to the sharp volatility we saw in April, and finally, the relief rally that carried us through the summer. Despite the noise, the market has held up better than the headlines would have had you believe back in the spring.
Here is the summation of where we stand and how the major themes of 2025 have played out so far.
The Market “Vibe” Check (Q1–Q3 2025)
• Equities (Stocks): It was a “barbell” year. On one side, we had a brief but scary pullback in early Q2 following the April tariff announcements. On the other side, we saw a powerful rebound driven by the usual suspects—Big Tech and AI. The S&P 500 managed to shake off the “trade war 2.0” fears and push back toward highs, largely because corporate earnings remained surprisingly durable.
• Fixed Income (Bonds): It’s been a tricky environment. While we all cheered the Fed’s rate cuts, bond yields didn’t fall as much as some hoped. Why? Because the market is sniffing out potential long-term inflation from those very same tariffs. However, bonds have returned to their traditional role as a portfolio ballast, providing income even when stock prices were swinging wildly in April.
The Big Three Drivers
1. The Tariff “Shock”
The biggest event of the year was undoubtedly the April 2nd tariff announcement.
• What happened: When the administration announced the new 10% universal baseline tariffs (and higher for specific nations), the market had a knee-jerk reaction. We saw a sharp sell-off (approx. 10-11% in days) as algorithms panic-sold manufacturing and retail stocks. When the administration began to assess the impact on the market, they toned back the rhetoric and equity prices recovered almost all of those losses quickly.
• The Reality: As we moved through Q2 and Q3, the reality turned out to be more nuanced. Many businesses had “front-loaded” their imports in Q1 (stockpiling goods before the tax hit), which softened the blow. By mid-summer, it became clear that while costs were rising, consumer spending wasn’t collapsing. The market realized the bark was slightly worse than the bite, leading to the recovery we are enjoying now.
2. Concentration: The “Safety” of the Top 10
You might be tired of hearing about the “Magnificent 7” or the “Top 10,” but they saved the day again in 2025.
• The Effect: During the tariff panic, investors didn’t flee to cash; they fled to quality—which in 2025 meant cash-rich, dominant tech monopolies, especially those associated with the AI movement.
• Current State: Value remains incredibly concentrated. The top 10 stocks in the S&P 500 are still generating a disproportionate amount of the index’s total return. While we have seen some “rotation” into financials and energy (thanks to deregulation hopes), Tech remains the engine. If you didn’t own the big names this year, you likely trailed the benchmark.
3. The Federal Reserve’s Actions
The Fed has been our safety net.
• The Action: They have continued the cutting cycle that began late last year, bringing the reference rate down to the 3.75%–4.00% range.
• The Meaning: This easing put a “floor” under stock prices. Whenever the tariff news got ugly, the Fed signaled they were ready to support liquidity. However, the pace of cuts has slowed recently. The Fed is walking a tightrope: they want to support growth, but they are terrified that the new tariffs will re-ignite inflation, so they can’t cut rates too fast.
Looking Ahead:
Here are the key factors that I am watching as we close out the year:
Positive Influences (+)
1. The AI Productivity Boom: It’s no longer just hype. In 2025, we saw non-tech companies actually proving they could use AI to cut costs and defend margins, which supported earnings even as tariffs raised input costs.
2. Resilient Labor Market: despite the manufacturing jitters, unemployment has stayed low (hovering around 4.2%). As long as people have jobs, they keep spending, and that powers 70% of the US economy. This is especially true in the K shaped economy that we currently experience. Those in the upper income brackets are continuing to spend while those in the lower income brackets are affected by the government shutdown and suspension of benefits.
3. Deregulation Tailwinds: The financial and energy sectors have benefited from a lighter regulatory touch this year, boosting M&A (mergers and acquisitions) activity and capital returns to shareholders.
Negative Risks (-)
1. “Sticky” Inflation: Core inflation is proving stubborn, hovering near 3% rather than falling to the Fed’s 2% target. If this ticks up, the Fed could pause rate cuts, which would hurt stock valuations.
2. Valuation Extremes: The S&P 500 may be expensive by historical standards. We are paying a high price for every dollar of earnings. This leaves little room for error if a big company misses its earnings targets in Q4.
3. Geopolitical Retaliation: We haven’t yet seen the full “clap-back” from trading partners regarding the April tariffs. If other nations implement targeted counter-tariffs on US tech or agriculture in Q4, it could spark a second round of volatility.
Heading into the final quarter of the year, I would expect volatility to continue in both the Equity and Fixed Income markets. Diversification in portfolio holding will become more important due to the concentration of return in the largest stocks. The Federal Reserve will continue to be a driving force. The current expectations tend to believe the Fed will ease one more time in December and then take action meeting by meeting according to the data they receive. Remember two important items, the Chairman’s term is up in the 2nd quarter of 2026 and there is still a possibility of another government shutdown at the end of January.
The opinions expressed herein are those of Riverbend Planning Group. The data and opinions are furnished for informational purposes only and should not be considered a solicitation for an investment decision. Although it is derived from sources believed to be accurate, Riverbend Planning Group makes no guarantee to the accuracy of the information
