3rd Quarter 2025 Market Commentary and Economic Outlook

Despite all the worries about tariff policy causing a recession, global markets and the economy kept rolling through the third quarter of 2025. Real GDP showed 3.8% growth through the end of the second quarter, and expectations are that we’ll see similar results for the third quarter. However, signs point to a softening labor market, which led the Federal Reserve to lower interest rates in September. 

These mixed – economic growth but weakening demand for labor – are interesting developments as we still wait to see what, if any, effect tariff policy will have on inflation. All eyes will continue to be on the Federal Reserve as they try to maintain a balance between inflation and employment mandates.

Our portfolio advisors at East Bay Investment Solutions provide the following summary, and as always, they try to take a balanced approach between reasons for optimism and pessimism. You can read their full report HERE or watch Mario’s video presentation HERE.

You can also catch our podcast episode on this topic HERE.

Summary:

• Global markets and the U.S. economy remained resilient through uncertainty.

• Dollar strength during Q3 muted international returns but has been an overall tailwind this year.

• Fed policy begins to ease in order to support labor markets

Glass half-full:

• Global stock markets continued their upward climb in Q3.

• Near-term recession risks continue to fade.

• U.S. GDP for Q2 was 3.8% and is expected to show similar growth in Q3.

• The Fed lowered interest rates for the first time in 2025.

Glass half-empty:

• Labor markets show signs of softening.

• Fed’s preferred inflation measure, Core PCE, continues to be stubborn at 2.9%, higher than the preferred level of 2%.

• AI-related spending is robust, but future revenue streams are not clear.

• Q3 ended with a shutdown of the U.S. Federal Government.

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