MARKET & ECONOMIC COMMENTARY: Q3
Markets Rebound as Tariff Fears Ease
Markets advanced in Q3 2025 as concerns over tariffs earlier in the year subsided. Investors took comfort in lower-than-expected final tariff rates and signs that evolving trade deals would limit economic disruption. Combined with renewed enthusiasm for artificial intelligence (AI) and a resumption of interest rate cuts, these developments fueled a strong rally.
Major U.S. equity indices - the S&P 500, Nasdaq, and Russell 2000 - all reached record highs during the quarter. International equities also outperformed their U.S. counterparts year-to-date (YTD). Meanwhile, a weaker U.S. dollar boosted precious metals, with gold posting its strongest annual gain since 1979, up roughly 46.7% YTD¹.
Growth Persists Amid Mixed Economic Signals
Economic data in Q3 painted a complex picture. The U.S. labor market softened in August, with unemployment rising to 4.3% and just 22,000 jobs added—marking the fourth consecutive month of disappointing job growth². Independent estimates suggest the private sector shed roughly 32,000 jobs in September amid a government data delay caused by the shutdown³.
Ongoing deportations have raised concerns about labor shortages in industries reliant on lower-cost labor, such as agriculture and hospitality.
Despite these challenges, Gross Domestic Product (GDP) growth has been stronger than expected. In the second quarter, GDP, the comprehensive measure of goods and services produced throughout the economy, rose 3.8% after its latest revision⁴. This upward revision was largely driven by stronger consumer spending and a sharp decline in imports. This marks one of the strongest quarters of growth since mid-2023.
Rate Cuts and AI Enthusiasm Lift Equities as Bond Yields Ease
The Federal Reserve, more concerned about labor market weakness than persistent inflation, cut the federal funds rate by 25 bps in September to a range of 4.00 to 4.25%. The Fed also signaled additional cuts later this year.
While inflation remains above the 2% target, policymakers judged that tariff-related price pressures would likely be temporary, whereas a weakening job market posed a more significant risk to long-term growth.
Historically, equity markets respond favorably to rate cuts, and this quarter was no exception. Cheaper borrowing costs and easier monetary policy supported both business investment and consumer spending.
At the same time, ongoing excitement around AI accelerated market gains. Several large-scale investments and partnerships were announced, underscoring confidence in the technology’s long-term potential⁵.
In the fixed income market, volatility persisted amid concerns about tariff-related inflation and expansionary fiscal policies across major economies. Nevertheless, moderating inflation expectations and strong inflows into bond funds supported bond prices, pushing yields lower⁶.
Tariffs and Valuation Risks Persist
Despite strong headline performance, some underlying stresses have begun to emerge. Rising tariffs, slower job growth, and persistent uncertainty have put pressure on consumer finances. Many households are “trading down” to lower-cost goods, subprime loan delinquencies are rising, and unemployment duration remains elevated⁷.
While consumer spending overall has held up, much of it is being driven by higher-income households, whose wealth has been buoyed by rising asset prices and relatively stable employment.
The long-term impact of tariffs remains uncertain. Many companies mitigated early disruptions by stockpiling inventories ahead of implementation, but those buffers are largely depleted. The situation remains fluid, particularly after the U.S. imposed an additional 100% tariff on Chinese imports in October, introducing fresh risks to near-term growth.
Valuations in the AI sector also warrant scrutiny. While investors have aggressively priced in optimism about future productivity gains, many firms have yet to show measurable profit improvements or efficiency gains⁸.
Historical patterns suggest that technological adoption cycles often take longer to yield tangible economic benefits, even if they ultimately prove transformative.
Given these factors, we remain cautious on U.S. equity valuations.
International Markets Remain Strong Year-To-Date
Despite global uncertainty, 2025 has been a strong year for international equities. The MSCI ACWI rose 7.8% in Q3 2025, with both developed and emerging markets advancing alongside U.S. stocks while maintaining a YTD performance edge.
A weaker dollar has been a tailwind for foreign equities, and investors have increasingly diversified internationally amid U.S. tariff risks. Still, regional challenges persist: France continues to struggle with structural reforms, Germany is attempting to reignite growth, and Japan faces political instability amid high debt and inflation.
Global Market and Factor Performance – Outperforming the U.S. Year-to-Date:
Looking Ahead
As we approach 2026, markets face crosscurrents: rising tariffs, a cooling labor market, and elevated valuations could temper optimism. Inflation’s trajectory and how the Federal Reserve responds will likely remain the key driver of sentiment. Any perceived threat to the Fed’s independence could also weigh on confidence.
Nonetheless, the U.S. economy has shown impressive resilience, and strong growth could continue to support earnings and markets into 2026.
We believe these uncertainties are best navigated with diversified, global portfolios that include companies capable of adapting to changing economic conditions. Balanced allocations to fixed income can also help buffer volatility.
In times of uncertainty, maintaining a disciplined, diversified approach remains the best strategy.
A Word about Protecting Your Accounts: Staying Vigilant Against Fraud
It is important to remember that financial risk doesn’t only come from market volatility. In our increasingly connected world, cyber threats pose a real and growing danger to investors. Whether you’re moving money online, reviewing statements, or communicating with the team, staying safe digitally is just as important as staying informed financially. With that in mind, here are a few tips to help protect yourself online, in addition to the safeguards we have in place for you.
At Fidelity and Shufro Rose:
We will never transfer funds at a client’s request from an existing open account without first obtaining your verbal confirmation.
If we notice any unusual activity, we will contact you immediately and can work with Fidelity to freeze or investigate the transaction.
As an individual account holder:
Unless you’re actively applying for credit, consider locking your credit files with all three major credit agencies by following these simple instructions below.
Equifax
Visit: www.equifax.com/lock
Create an account or log in
Use their free Lock & Alert tool to lock your credit
Experian
Visit: www.experian.com
Log in or create an account
Enable CreditLock to secure your file
TransUnion
Visit: www.transunion.com/credit-lock
Sign up for a free TrueIdentity account
Use the toggle to lock your credit
Be skeptical of anyone contacting you by phone, email, or text who requests personal or financial information. If they call and ask for your personal information, hang up and call them back from the number listed on your statements. Be aware of numbers that appear in online searches, as these can be false and manipulated.
Never send any documents with your personal information by email. Make sure they are encrypted or password protected.
On Fidelity’s website or app, set up activity alerts for transfers, account changes, or logins. These notifications can help you detect suspicious activity quickly. Note that if an account is closed at Fidelity using impersonated credentials, and the whole amount is moved via an ACAT request made by another institution, we do not receive the notification until it is moving. We will make every effort to contact you immediately for verification. However, using direct alerts from Fidelity is the best line of defense in this scenario.
Shred all documents that have account numbers and other personal information. Never assume your trash is safe.
Final Thoughts
At Shufro Rose, protecting your assets and personal information is one of our highest priorities. Rest assured that with Fidelity’s robust security systems, our internal safeguards, and your own precautions, the likelihood of such events remains very low.
If you ever have questions or notice anything unusual, please don’t hesitate to reach out to our team right away. We’re always here to help protect your assets and your peace of mind.
Footnotes
“September, Third Quarter 2025 Review and Outlook,” Nasdaq, October 1, 2025, https://www.nasdaq.com/articles/september-third-quarter-2025-review-and-outlook
“Employment Situation Summary,” U.S. Bureau of Labor Statistics, September 5, 2025, https://www.bls.gov/news.release/empsit.nr0.htm
“ADP National Employment Report: Private Sector Employment Shed 32,000 Jobs in September; Annual Pay was Up 4.5%,” ADP, October 1, 2025, https://mediacenter.adp.com/2025-10-01-ADP-National-Employment-Report-Private-Sector-Employment-Shed-32,000-Jobs-in-September-Annual-Pay-was-Up-4-5
“Gross Domestic Product, 2nd Quarter 2025 (Third Estimate), GDP by Industry, Corporate Profits (Revised), and Annual Update,” Bureau of Economic Analysis, September 25, 2025, https://www.bea.gov/news/2025/gross-domestic-product-2nd-quarter-2025-third-estimate-gdp-industry-corporate-profits
Buchbinder, J., “Q3 2025 Market Recap: 10 Key Takeaways Investors Need to Know,” Investing.com, October 2, 2025, https://www.investing.com/analysis/q3-2025-market-recap-10-key-takeaways-investors-need-to-know-200667903
https://www.wsj.com/business/autos/auto-loans-subprime-late-payments-1d8bb33c
https://www.wsj.com/tech/ai/ai-worker-productivity-economy-77498195?mod=hp_lead_pos2w
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