Contributed by: Center Investment Department
The third quarter of 2025 was one for the record books. The S&P 500 hit new all-time highs 23 times during the quarter. That is the most new highs in a single quarter since 1998! Bonds and small company stocks did not want to be left behind. The Russell 2000 set its own first record high since 2021, and the Bloomberg Aggregate Bond index moved higher for the 3rd straight quarter. Developed international and emerging markets also continued their strong start to the year. For more details, check out our blog. This means that this year has been great for diversified portfolios, which have taken less risk than the S&P 500 but logged nearly as high returns for a 60% Stock/40% Bond portfolio (40% Bloomberg Aggregate Bond index, 40% S&P 500, and 20% MSCI EAFE International index).
Muted Inflation and Interest Rate Cut
While inflation is tempered for now (even though it lingers above the 2% Fed target), we will likely see it rise in the coming months. Tariffs will cause upward pressure, but low energy prices, declines in shelter inflation, and global economic sluggishness should mitigate the rise.
The Federal Reserve (The Fed) began cutting interest rates again, citing a sluggish labor market. The first cut of .25% occurred in September and is likely to be followed by 1 or 2 more .25% cuts this year. The Fed will continue to let data drive its decision-making here. The only issue with this is that some data points may be very delayed due to the government shutdown. Lower rates will mean lower money market interest rates, but should also lead to a welcome reduction in mortgage interest rates.
Tariffs
Tariff revenue is starting to ramp up. Both August and September reports indicate that monthly revenue was over $31 billion each month. Our weighted average tariff revenue in the U.S. is sitting just over 15% compared to just 2.5% in February of this year. As an example, if a 20% average tariff rate were in place for the next 12 months, the U.S. Treasury could collect over $600 billion, which exceeds taxes received from corporations! It remains to be seen how companies will manage this, whether they absorb the hit to their bottom line or pass it along to consumers. Given enough time, companies will also find strategies to mitigate, such as onshoring production or shifting production to countries with lower tariff rates, to stay competitive.
While tariffs were ruled unlawful by lower courts, this case is now in the Supreme Court’s hands, and it could take several months before a final ruling. So they are here to stay for the time being.
Government Shutdown
As of October 1st, the U.S. government has officially entered a shutdown—its first in nearly seven years since the record-breaking 35-day standoff in 2018. The impasse stems from Congress’s failure to pass a budget, driven by partisan disagreements over healthcare funding and proposed federal spending cuts. This has led to disruptions across key agencies, such as the Bureau of Labor Statistics, which has delayed vital economic data and raised concerns about the Federal Reserve’s ability to make informed monetary policy decisions. While this shutdown carries unique weight due to the administration’s push for permanent layoffs and structural changes, investors are reminded that volatility often presents opportunity. Shutdowns are typically brief, averaging just nine days and usually create openings for disciplined investors to reassess and rebalance.
As illustrated in the chart below, the S&P 500 has consistently trended upward in the months following past shutdowns. Despite initial turbulence, markets have shown remarkable resilience, frequently rebounding once political uncertainty fades. 12-month gains following the 20 shutdowns over the past 50 years have averaged 13%, with positive performance 85% of the time! Shutdowns may feel unsettling in the moment, but history offers a reassuring perspective: portfolios anchored in strong fundamentals tend to weather political disruptions better than reactive strategies. Staying diversified and focused on long-term goals remains the most effective approach. The chart serves as a powerful visual reminder that staying the course has historically paid off, even when headlines suggest otherwise.
Investing at All-Time Highs
We are navigating this current stock market with two competing narratives. One screams, “sell!” as valuations continue to rise to historic levels despite a weakening labor market, increased tariffs, and uncertain global trade. The other screams, “buy!” as consumers remain strong, the Fed begins cutting rates, companies continue to grow earnings, and the excitement around productivity gains from A.I. continues to accelerate. Whatever your opinion on the stock market, the fact is that the S&P 500 continued to make new all-time highs this quarter – which is NOT an indicator that stocks need to fall. On the contrary, all-time highs tend to be followed by…more all-time highs. With that being said, it is understandable to be concerned or have a cautious outlook on equity markets going forward. When times feel extra uncertain, we lean on our process, historical precedent, diversification, emergency cash reserves, and strong financial planning to provide comfort and give us the conviction we need to stick to the plan.
Gold’s Strong Performance
The remarkable run-up in gold prices this year also speaks to the themes of uncertainty and opportunity in today’s investment landscape. By the end of this quarter, gold had risen above $3,800 per ounce, marking a staggering 47% gain year-to-date and setting repeated record highs amid rate cuts, rising deficits, geopolitical tensions, and government shutdowns. Will it reach a historic new level and surpass $4,000 this year? Maybe…that is only another ~5% away. Gold is a volatile investment that typically moves in bursts, and we are currently witnessing one impressive surge. Like any investment, it comes with serious risk, though. Check out the chart below to see some of gold’s historic crashes.
It has had multiple periods where it was cut in half over YEARS. It can have beneficial attributes in an investment portfolio due to its uncorrelated nature, but no investment is perfect, so consider the risks before allocating or chasing performance. Also, keep in mind the long-term performance of gold vs. stocks and bonds.
As we enter the final stretch of 2025, your financial plan is prepared for what the markets may throw our way. Six months ago, on April 2nd, Liberation Day, the tariff plan was rolled out. This caused a sharp correction in markets, but almost as sharp a recovery. If you blinked, you probably missed it. It is an important reminder not to make knee-jerk reactions with your portfolio during these times of volatility, as you could quickly be left on the sidelines waiting for your re-entry point, especially when markets soar to new highs, as they have this year. If you have any questions, we are always here for you. Please don’t hesitate to reach out to us!
Any opinions are those of Angela Palacios, CFP®, AIF®, Nick Boguth, CFA®, CFP®, and Mallory Hunt and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Investing in gold carries special risks, including wide price fluctuations, a limited market, concentrated sources in potentially unstable countries, and an unregulated market.
