As the third quarter of 2025 closes, markets are reminding investors that volatility and progress often arrive together. At the time of writing, we are experiencing an ongoing government shutdown in Washington—an immediate disruption for many federal workers and a headline that rightly commands attention. Yet history and recent market behavior suggest that while shutdowns are painful for those affected, they have often proved to be a short-term political event rather than a long-term market driver. Investors, for now, appear focused on economic fundamentals rather than the day’s headlines.
Across the quarter, we saw broadly constructive returns. U.S. equities advanced 8.2% (Russell 3000 Index) as corporate earnings largely met expectations and smaller-cap stocks regained momentum—U.S. small caps rose 12.4%, outpacing their larger counterparts. Overseas markets also added to the quarter’s strength, with developed markets up 5.3% and emerging markets gaining 10.6%, a reminder that opportunity exists beyond the largest U.S. companies. Bonds played their familiar role as ballast, posting a 2.0% gain (Bloomberg U.S. Aggregate Bond Index) as markets absorbed the Federal Reserve’s rate cut.
The economic picture is one of resilience with pockets of moderation. Headline growth has held up, but the pace of hiring and certain business indicators cooled during the quarter. Inflation remained above the Fed’s long-run target, but with price pressures easing from their 2022 peaks, the central bank’s decision to lower rates signaled a shift toward a more accommodative stance. Falling yields—the 10-year Treasury declined to 4.16% by quarter-end—supported both risk assets and high-quality fixed income.
For investors, patience and process remain vital. Short-term shocks, whether political or geopolitical, rarely alter a well-constructed plan. What changes markets over time are persistent structural shifts—policy regimes, growth trajectories, and valuation trends—and those are best navigated with disciplined positioning and periodic rebalancing.
That said, risk has not disappeared. The ongoing shutdown and China trade tensions are a reminder that policy-induced uncertainty can influence sentiment in the near term. Supply-chain tensions, trade policy shifts, and uneven hiring data all warrant attention. Caution, however, need not mean paralysis. Thoughtful adjustments including tax-aware rebalancing, re-examining liquidity needs, and aligning allocations with risk tolerance, are sensible responses when volatility rises.
As always, our role is to help clients see beyond the headlines. The task is not to predict the next political episode but to ensure that financial plans and portfolios remain fit for long-term goals. If recent events have prompted questions about your allocation or time horizon, we invite you to reach out so we can review your plan together.
