Global Market Review and Outlook

And the beat goes on. The third quarter was characterized by continued momentum and further gains in capital markets across most asset classes and geographies. Easing global trade tensions, healthy corporate earnings, and lower interest rates helped U.S. equities (as measured by the S&P 500) advance 8.1% during the quarter and end the period at fresh all-time highs. It seems hard to believe that the S&P 500 was down roughly 15% on the year as recently as April when tariff fears peaked. The market has not looked back since, rising for five straight months. 

International stocks also continued to perform well amid signs of improving economic growth across regions. International developed markets increased 4.8% in the third quarter, while emerging markets fared even better, advancing 10.6%. Fixed income eked out gains as well in the quarter as bond markets anticipated and received a helpful interest rate cut by the Federal Reserve late in the quarter.

Source: Factset

The recent gains and sustained strength in the markets feel uncomfortable to many, understandably. Political and geopolitical tensions remain a key source of anxiety. Renewed U.S.–China trade friction—anchored by threats of broader tariffs and restrictions on rare earth exports—has revived fears of a trade war that could disrupt global supply chains and corporate margins. Ongoing conflicts in Eastern Europe and the Middle East continue to pressure energy markets and heighten volatility, while a partial government shutdown in the U.S. has compounded uncertainty at home. 

Economically, the labor market softened notably through the summer, with job growth revisions showing far weaker hiring than initially reported and unemployment drifting up to 4.3%—its highest since 2021. Consumer confidence has also declined as households grow more sensitive to slower wage growth and lingering inflation. Meanwhile, market valuations have expanded meaningfully. The S&P 500 currently trades at approximately 23x estimated next-12-months’ earnings—a historically high figure relative to the 10-year and 20-year average of 19.0x and 16.4x respectively. Higher valuations in short leave less room for error.    

Yet despite these worries, the market rally rests on several durable drivers. U.S. economic activity remains quite resilient. GDP was revised up to 3.8% annualized growth in the second quarter, the fastest pace of expansion in almost two years. Recent estimates for the third quarter have also moved higher. In addition, corporate earnings have surpassed expectations across many sectors, with firms adapting effectively to elevated tariffs and mixed consumer conditions. The most powerful support has come from record capital spending in artificial intelligence infrastructure—data centers, cloud architecture, and semiconductor manufacturing—that continues to propel productivity and profit gains.  Over 80% of S&P constituents exceeded market expectations this past quarter, far more than the 60% longer-term average. 

Perhaps surprisingly, the current policy environment adds favorably to the mix. Trump’s Big Beautiful Bill provides further fiscal stimulus that should power the economy into 2026 by instituting tax cuts and incentives for capital investments and domestic manufacturing. In addition, monetary policy turned more helpful in the quarter as the Federal Reserve began lowering interest rates again in the period. With inflation under better control and worries over potential labor market weakness, more rate cuts are anticipated by the end of the year. Typically, lowering interest rates during a period of reasonable economic health is a good recipe for the market. 

Looking ahead, the investing landscape remains incredibly fluid and complex. For the U.S. equity market, the fundamental backdrop of productivity growth, policy support, and structural tailwinds like innovation and robust corporate balance sheets argues in favor of staying invested rather than retreating from risk altogether. However, persistent risks—including sticky inflation, tariff escalation, high valuations, and economic concentration—suggest selectivity remains important and elevated volatility may lie ahead. 

Internationally, the outlook for equities benefits from more attractive valuations compared to the concentrated U.S. market, favorable currency dynamics from a potentially weakening U.S. dollar, and improving economic and corporate fundamentals in some regions. However, risks are present, including ongoing trade policy uncertainties that could disrupt global growth and continued geopolitical instability. The result is a balanced outlook offsetting genuine opportunity against elevated global risks. 

In the fixed-income markets, expectations of lower rates and stable credit conditions should support market fundamentals. Persistent inflation, however, could limit bond price upside, making diversification and duration management key. Yields on long-term Treasuries are expected to remain elevated, offering opportunities in shorter-maturity T-bills and corporates, while high-quality municipals remain attractive for tax-efficient income.

As always, portfolios are positioned with resilience and adaptability in mind, balancing growth opportunities with appropriate risk management. We continue to look beyond short‑term uncertainty and focus on investments that remain aligned with your long‑term objectives. We are grateful for your continued trust and remain committed to prudent stewardship of your capital.

Please reach out with any questions and, perhaps most importantly, enjoy the fall!

Regards,

John, Cam, Lauren, and team