The old Wall Street adage that “every bull market climbs a wall of worry” has rarely felt more fitting than it does this year. In 2025, investors have faced a long list of market concerns, from tariffs and trade tensions to rising geopolitical risks, persistent inflation, and policy uncertainty. Yet, despite bouts of extreme volatility and sharp declines across major indexes in April, the U.S. stock markets kept climbing through the third quarter of 2025, hitting several new record highs. The Nasdaq Composite Index led the way, advancing +11.43%, with the S&P 500 and Dow Jones Industrial Average also turning in solid performances of +8.11% and +5.67% respectively. The Russell 2000 Index of small capitalization companies finally joined the rally, getting close to the record it set back in November 2021 with an impressive +12.39% return for the third quarter that brought them into the green for the first time since the beginning of the year. Growth stocks continued to outperform value across all market capitalizations, extending a decade-long trend.1
All the sectors, except for consumer staples, delivered positive returns. Most of the quarterly gains came from the information technology and communication services sectors, boosted by strong earnings and growing confidence in the Federal Reserve’s shift to a more supportive policy. The Magnificent Seven continued to take center stage. Tesla jumped nearly +50% during the quarter, mostly in September, as buyers rushed to take advantage of the $7,500 EV tax credit before it expired. Alphabet, Apple, and Nvidia also delivered impressive results.2
Both the developed and emerging international markets advanced alongside U.S. equities during the quarter, with the MSCI EAFE Index gaining +4.87%. Year-to-date, however, international equities continue to outpace their U.S. counterparts, supported by a weaker U.S. dollar that has strengthened returns abroad.3
Core bonds, as measured by the Bloomberg U.S. Aggregate Bond Index, gained +2.0%4 in the third quarter, reflecting a broad decline in yields across the curve amid moderating inflation concerns. The yield on the 10-year U.S. Treasury fell by eight basis points from June 2025, ending the quarter at 4.15%.5
The U.S. economy showed a strong rebound in the second quarter, with real GDP rising +3.8% after a modest contraction earlier in the year. While recent results have been influenced by tariff-related swings in trade and inventories, marked by a nearly +40% jump in imports in the first quarter of 2025 and followed by a -30% drop in the second quarter, the underlying picture remains positive. Real final sales to private domestic purchasers, a key gauge of fundamental demand, grew a solid +2.9%6, signaling healthy consumer momentum. Looking ahead, the Atlanta Fed’s GDPNow model is forecasting +3.8% growth for the third quarter, suggesting that consumer spending and overall economic resilience remain on firm footing.7
On the cautious side, the U.S. labor market revealed deeper signs of weakness than previously understood. According to the Bureau of Labor Statistics’ preliminary revision, the economy added 911,000 fewer jobs during most of 2024 than initially reported. It was the largest downward adjustment since 2000, affecting every sector. More recent data point to a continued cooling trend, with only 22,000 jobs added in August and the first monthly job decline since 2020 recorded in July. The unemployment rate has also edged up to 4.3%, its highest level since the pandemic, though still below the long-term 50-year average.
The August Consumer Price Index (CPI) report indicated a +0.4% month-over-month increase, bringing the year-over-year inflation rate to 2.9%.8 This data highlights the persistent price pressures that continue to impact consumers. While consumer spending remained resilient, there are emerging signs of financial strain. The University of Michigan Consumer Sentiment Index declined to 55.1, its lowest level since May, reflecting a year-over-year decrease of more than 20%.9 Despite the softer sentiment, retail sales rose 0.6% in August, exceeding market expectations and underscoring the ongoing strength of consumer activity in the face of inflationary challenges.10
As it was widely anticipated, the Federal Reserve cut interest rates by twenty-five basis points at its September meeting, setting the new target range for the federal funds rate at 4.00%–4.25%. Chair Jerome Powell characterized the move as a “risk management cut” intended to support a cooling labor market while continuing to address inflation that remains slightly above the Fed’s 2% goal.11 In its updated Summary of Economic Projections, the Fed signaled the likelihood of two additional rate cuts before year-end, marking a potential turning point in monetary policy.12 After more than a year of balancing concerns over stubborn inflation and the risk of over-tightening, recent signs of labor market softening have shifted the focus toward the Fed’s employment mandate, suggesting a move toward a more neutral policy stance.
As we move into the final quarter of 2025, the outlook reflects a cautious but optimistic balance between risks and opportunities. On the positive side, earnings growth, continued investment in artificial intelligence, and the potential for additional Federal Reserve rate cuts provide solid support for equities, an asset class that has historically performed well during periods of monetary easing. However, elevated valuations, signs of a softening labor market, and ongoing tariff concerns remain notable headwinds. So far, though, the impact of tariffs on overall prices has been relatively limited.
Another area of concern involves the duration of the ongoing government shutdown. This uncertainty affects not only federal workers, but also Social Security beneficiaries, travelers, and the broader public. However, historical trends provide some reassurance. Data from Nasdaq Economic Research show that equity markets have generally remained resilient during previous shutdowns. In fact, during each of the last five shutdowns since the mid-1990s, the market posted gains, including a 9% increase during the record-long 2018–2019 closure. While the current situation carries higher stakes and could spark short-term volatility, such periods can also open selective buying opportunities. As always, we remain focused on prudent portfolio management, seeking to balance potential opportunities with careful risk oversight on your behalf.
Dumont & Blake Investment Advisors, LLC
September 30, 2025
1 Source: Bloomberg
2 Source: Bloomberg
3 Source: Morgan Stanley Capital International
4 Source: Bloomberg
5 Source: U.S. Dept. of Treasury, Daily Treasury Par Yield Curve
6 Source: Bureau of Economic Analysis 9/26/25
7 Source: Federal Reserve Bank of Atlanta, GDPNow Estimates, 10/1/25
8 Source: BLS, CPI News Release, 9/11/25
9 Source: Survey of Consumers, Univ. of Michigan
10 Source: U. S Census Bureau
11 Source: federalreserve.gov, minutes of 9/16/25-9/17/25 FOMC meeting
12 Source: federalreserve.gov, Summary of economic projections
This commentary is for informational and educational purposes only and includes general economic and market conditions. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Data and other market and economic information referenced is from sources believed to be reliable and opinions are subject to change. All investments involve risks, including the loss of principal.