The stock market continued its rally in the third quarter, with global stocks returning 8%. Since the market bottomed in April, U.S. large caps have returned over 30%. Optimism around interest rate cuts, a rebound in the performance of large technology companies and solid consumer spending powered returns.
Bond investors registered strong returns in the quarter, with U.S. core bonds up 1.5%-2% and municipal bonds up 3%.
The Federal Reserve lowered the Fed Funds rate by a quarter of a percent in September as they look to balance keeping inflation in check while supporting the job market. Growth has softened in 2025 but is expected to pick up in the first half of next year.
Economic Update
Chart Source: JPMorgan Guide to the Markets, September 30, 2025
The Federal Reserve cut rates by 0.25% in September, bringing the federal funds rate down to 4.00%–4.25%. The Fed is walking a fine line as it tries to keep inflation under control while also supporting the job market. Investors expect the Fed funds rate to fall to around 3.7% by year end and then decline to closer to 3% by the end of 2026.
Inflation has nudged higher recently, reaching 2.9% year-over-year in August. Shelter and dining and recreation continue to push prices up while core goods prices have moved higher as well. Inflation is expected to climb above 3% by year-end before easing again by late 2026.
Unemployment is still low at 4.3%, but we are seeing some cooling with fewer job openings and slightly higher layoffs. However, slower job growth appears to have been balanced out by a drop in immigration, which has kept the unemployment rate steady.
Growth has softened this year, with government cutbacks, uncertainty around tariffs and lower immigration all factoring into the equation. However, growth is expected to pick back up in the first half of 2026, as higher tax refunds tied to the new tax law stimulate the economy.
Equity Recap
Global equities were up 8% in the third quarter and have returned 18% year to date. Leading the way has been international stocks as accommodative fiscal policy, lower starting valuations, and a decline in the price of the U.S. dollar have driven returns. Year-to-date, currency effects have added 9% to the returns of international stocks for U.S. investors.
Chart Source: Dimensional Fund Advisors and JPMorgan Guide to the Markets, September 30, 2025
U.S. stock performance was strong in the third quarter as well, with large caps up 8% and small caps up 9%. Since the market bottomed in April, U.S. large caps have appreciated over 30%, rewarding investors who remained in the market throughout this volatile year. S&P 500 earnings grew 12% in the first half of the year and are expected to be up 10%-11% for 2025. Given the strong performance since mid-April, valuations have increased as earnings growth has not kept up with prices.
After a weak start to the year, mega cap tech stocks have delivered strong returns, contributing slightly less than half of the return of the S&P 500. The above average valuations for U.S. stocks are being driven by the largest companies in the index. It is worth noting that the group of technology stocks known as the magnificent seven have experienced earnings growth of 20% per year on average over the last 4 years while the remaining companies in the S&P 500 saw earnings growth of only 10% per year on average. However, the gap in earnings between these two groups has been narrowing and this trend is expected to continue in 2026.
Fixed Income Recap
U.S. core bonds have generated solid returns of 5.5% to 6% this year, reflecting both attractive starting yields of 4%–5% and price gains as interest rates have eased. Corporate bonds also outperformed, with credit spreads grinding tighter. However, the extra yield earned by taking corporate credit risk is near its lowest levels in recent history, limiting opportunities for meaningful outperformance.
Compared to 12 months ago, the yield curve has gone from inverted, which mean short-term yields are higher than long-term yields, to a more normal shape with long-term yields being higher than short-term yields. Investors are now benefitting from stepping out of cash and owning longer maturities with higher income. The difference between short-term and long-term yields is expected to widen over the next 12 months, with short-terms yields continuing to decline. However, it is important to remember that owning longer maturities comes with more price sensitivity to changes in interest rates.
We have seen historically that the current yield is a strong predictor of returns over the coming five years, which points to returns of 4%-5% for bond investors over the coming years.
2025 Outlook & Beyond
Looking back on the year thus far, markets have survived the uncertainty around economic policy and posted strong returns across most asset classes. Diversification has proven its value, offering investors timely opportunities to capture gains and enhance returns through rebalancing.
Going into year-end we note that stocks have shown strong momentum but that valuations are extended. We think it is appropriate to review portfolios in light of the performance we’ve seen to make sure they are positioned in a way that is aligned with an investor’s goals and the amount of risk they are comfortable taking.
We remain focused on the consistent implementation of the long-term plan we have put in place for clients and believe that this will continue to yield successful outcomes. If you are not a client and have not stress-tested your portfolio, or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
Dan Haines, CFP®, CFA
Dan joined Voisard Asset Management Group in 2024 as a Senior Wealth Manager. He is responsible for the development of comprehensive wealth management plans, the management of investment portfolios and the development of firm-wide investment strategies.
Prior to Voisard Asset Management Group, Dan co-founded and led an investment advisory firm. Prior to that, Dan worked for two multi-billion-dollar advisory firms where he focused on building tailored portfolios for clients. Dan is a CFA® charterholder and a CERTIFIED FINANCIAL PLANNER™ practitioner. He holds a BA from Calvin College and a MBA from the University of Notre Dame.
Dan serves on the boards of Kalamazoo Loaves & Fishes and Alongside Inc. He grew up in Grand Rapids and now lives in the Kalamazoo area. When he isn’t working with clients, Dan spends most of his time with his wife and daughters. He also enjoys golfing and spending time outdoors.
3rd Quarter 2025 Commentary
Contributed by: Dan Haines, CFP®, CFA
Market Performance Overview
Economic Update
The Federal Reserve cut rates by 0.25% in September, bringing the federal funds rate down to 4.00%–4.25%. The Fed is walking a fine line as it tries to keep inflation under control while also supporting the job market. Investors expect the Fed funds rate to fall to around 3.7% by year end and then decline to closer to 3% by the end of 2026.
Inflation has nudged higher recently, reaching 2.9% year-over-year in August. Shelter and dining and recreation continue to push prices up while core goods prices have moved higher as well. Inflation is expected to climb above 3% by year-end before easing again by late 2026.
Unemployment is still low at 4.3%, but we are seeing some cooling with fewer job openings and slightly higher layoffs. However, slower job growth appears to have been balanced out by a drop in immigration, which has kept the unemployment rate steady.
Growth has softened this year, with government cutbacks, uncertainty around tariffs and lower immigration all factoring into the equation. However, growth is expected to pick back up in the first half of 2026, as higher tax refunds tied to the new tax law stimulate the economy.
Equity Recap
Global equities were up 8% in the third quarter and have returned 18% year to date. Leading the way has been international stocks as accommodative fiscal policy, lower starting valuations, and a decline in the price of the U.S. dollar have driven returns. Year-to-date, currency effects have added 9% to the returns of international stocks for U.S. investors.
U.S. stock performance was strong in the third quarter as well, with large caps up 8% and small caps up 9%. Since the market bottomed in April, U.S. large caps have appreciated over 30%, rewarding investors who remained in the market throughout this volatile year. S&P 500 earnings grew 12% in the first half of the year and are expected to be up 10%-11% for 2025. Given the strong performance since mid-April, valuations have increased as earnings growth has not kept up with prices.
Fixed Income Recap
U.S. core bonds have generated solid returns of 5.5% to 6% this year, reflecting both attractive starting yields of 4%–5% and price gains as interest rates have eased. Corporate bonds also outperformed, with credit spreads grinding tighter. However, the extra yield earned by taking corporate credit risk is near its lowest levels in recent history, limiting opportunities for meaningful outperformance.
Compared to 12 months ago, the yield curve has gone from inverted, which mean short-term yields are higher than long-term yields, to a more normal shape with long-term yields being higher than short-term yields. Investors are now benefitting from stepping out of cash and owning longer maturities with higher income. The difference between short-term and long-term yields is expected to widen over the next 12 months, with short-terms yields continuing to decline. However, it is important to remember that owning longer maturities comes with more price sensitivity to changes in interest rates.
We have seen historically that the current yield is a strong predictor of returns over the coming five years, which points to returns of 4%-5% for bond investors over the coming years.
2025 Outlook & Beyond
Looking back on the year thus far, markets have survived the uncertainty around economic policy and posted strong returns across most asset classes. Diversification has proven its value, offering investors timely opportunities to capture gains and enhance returns through rebalancing.
Going into year-end we note that stocks have shown strong momentum but that valuations are extended. We think it is appropriate to review portfolios in light of the performance we’ve seen to make sure they are positioned in a way that is aligned with an investor’s goals and the amount of risk they are comfortable taking.
We remain focused on the consistent implementation of the long-term plan we have put in place for clients and believe that this will continue to yield successful outcomes. If you are not a client and have not stress-tested your portfolio, or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
Dan Haines, CFP®, CFA
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