Quarterly Market Review 2025 Q3

In the third quarter of 2025, global stock markets saw a continuation of strong performance. The Federal Reserve’s decision to cut rates by 0.25% in September, which included an indication of more rate cuts to come, brought short-term bond interest rates down, and buoyed the U.S. stock market for an 8.2% increase in Q3. Global bond market returns were more muted, but still positive. Read on for more details.

Here are a few data points from Q3:

• The U.S. stock market finished up 8.2% in Q3, continuing an impressive recovery since the 19% drop in April.

• Value stocks rallied in Q3 (up 6.36%), closing the gap with growth stocks (6.9%).

• Emerging markets posted 10.6% gains while international stocks were up 5.3%.

• For the first time since September 2024, the Fed cut interest rates by 0.25% in response to rising unemployment numbers.

• U.S. bonds gained 2% as lower yields from the Fed’s rate cut increased prices.

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Below is a snapshot of key top-line economic indicators:

U.S. Stocks

The third quarter of 2025 started strong, buoyed by easing trade tensions, earnings reports showing resilience amid tariff concerns, and optimism around artificial intelligence (AI). As the quarter progressed, signs of economic weakness emerged—job growth slowed, inflation ticked higher, and renewed political pressure on the Fed rattled investor confidence. Despite growing economic uncertainty, the September interest rate cut and hopes of future rate cuts helped keep the U.S. stock market climbing. Continuing its rally, U.S. stocks rose 8.2% in Q3, hitting new record highs and gaining an impressive 35% since the low on April 8, 2025.

Technology and communication services led the way, with the top ten performing companies generating 5.5% of the U.S. market’s 8.2% gains. Two leaders, Apple (AAPL) and Alphabet (GOOGL/GOOG), contributed 1.3% each. Apple got a boost after announcing that it would be investing $100 billion in U.S. manufacturing, with the expectation that the shift will reduce tariff risks. Alphabet shares jumped 7% after a favorable antitrust ruling relating to Google search, bringing the stock up more than 50% since April. In July, Nvidia (NVDA) became the first company to surpass a $4 trillion market cap.

While growth stocks outperformed value, it was not by a significant margin (6.36% vs. 6.9%), and small-cap stocks stole the show thanks to a strong September, ending Q3 up 8.54%. Large-cap was up 6.6% but dominated headlines because of enormous AI-related investments, while mid-cap growth stocks were the soft spot, up only 2.5%.

International Stocks

International stocks had solid gains with 5.3% returns and emerging market stocks rose 10.6%, after both markets were up 12% in Q2. International valuations continued to be more attractive compared to the U.S. market, and were further boosted by expectations of interest rate cuts.

China, Canada, and Japan led gains outside of the U.S. Chinese tech stocks surged 22% in the third quarter, amounting to a 46% increase year-to-date. The gains were largely driven by policy support for domestic chipmakers, increasing AI investment, and easing trade tensions with the U.S. In Japan, a weaker yen, solid domestic economic data, and a new U.S.–Japan trade deal that cut U.S. tariffs on most Japanese exports from 25% to 15% drove stocks up 8.6%.

Despite domestic economic challenges, U.K. equities returned 6.9% thanks to international revenue exposure and a weaker sterling. In contrast, European equities rose by a modest 2.8%, weighed down by a 1.2% decline in German stocks. French stocks fared slightly better, up 3.3%, amid political change and ongoing economic uncertainty.

Fixed Income

After keeping rates steady for a year, the Federal Reserve cut interest rates in September, bringing the federal-funds target rate down to 4%-4.25%. Inflation continues to stay above the 2% target due to continuity of a positive business environment and the impact of tariffs. Despite moderate pricing pressures, the job market has been cooling considerably, and expectations are for the Fed to further cut rates over the coming months.

U.S. bonds posted modest gains of 2% in Q3. Shorter-term Treasury yields fell, reflecting growing expectations for more Fed rate cuts, while longer-term yields held fairly steady with uncertainty over the longer-term impact of the government deficit. In the corporate sector, investment-grade and high-yield credit performed slightly better than Treasuries.

As short-term interest rates declined over the summer, the U.S. Treasury yield curve steepened, with long-term yields falling more gradually, and this trend will continue with future Fed rate cuts. By the end of the third quarter, the gap between 10-year and 2-year Treasuries stood at 0.56 percentage points—unchanged from Q2, but wider than earlier in the year.

Overall, global bond market volatility eased up as the shock around tariff-related announcements subsided, but European, U.K. and Japanese bonds weighed down international bonds, which returned only 0.50% in Q3.