Market Commentary - October 2025

October 2025

Global Markets Extend Strong Recovery

The third quarter saw continued strength in global equities following the April tariff-driven selloff. In the U.S., major indexes including the S&P 500, Nasdaq, and Dow all set multiple new all-time highs. The small-cap Russell 2000 finally joined the all-time-high crowd in September, leading major indexes with a 12% gain for the quarter.

Overseas, emerging markets outperformed as the MSCI Emerging Markets Index climbed 10.1%, taking the YTD lead with a +25.2% gain. The MSCI EAFE Index of developed international markets posted a solid 4.2% Q3 gain, bringing its YTD return to +22.3%, helped by a 9.9% decline in the U.S. dollar through the first nine months of the year.

The Federal Reserve cut policy rates by 0.25% at its September meeting—the first rate cut in 2025 after a nine-month pause—signaling a shift toward a more accommodative stance amid moderating inflation and a softening labor market.

A Year of Parallels

Much like 2020, 2025 has seen dramatic swings in market sentiment. Both years experienced steep downturns early in the year, followed by powerful recoveries fueled by policy actions and resilient investor confidence. Despite numerous opportunities to de-risk, investors who remained disciplined and focused on the long term have been rewarded.

While volatility remained relatively subdued throughout Q3—aside from brief spikes—we anticipate a bumpier fourth quarter. Continued patience and prudent diversification remain essential amid stretched valuations and ongoing global uncertainty.

Key Q3 Highlights:

• U.S. stocks posted broad gains in Q3 setting multiple all-time highs, led by the small-cap Russell 2000 +12%; it was the first all-time high for Russell 2000 since 2021 

• Large-cap growth and technology stocks maintained YTD dominance with Nasdaq posting an 11.2% Q3 gain and +17.3% YTD
  
  
• Benchmark S&P 500 gained 7.8% in Q3 and finished +13.7% YTD, while the Dow closed above 46,000 for the first time gaining 5.2% in Q3 and 9.1% YTD; mid-cap S&P 400 lagged in Q3 and YTD
  
  
• From the April 8 tariff low, markets have had a remarkable recovery led by the tech-heavy Nasdaq +48.4%, Russell 2000 +38.4%, and S&P 500 +34.2%, ending 9-30-25
  
  
• Overseas, MSCI Emerging Markets led in Q3 gaining 10.1% and extended YTD gains to a leading +25.2%; developed market benchmark MSCI EAFE added 4.2% in Q3 and up 22.3% with a wind-aided assist from the 9.9% YTD decline in the US dollar, though it stabilized in Q3 +0.9%
  
  
• Interest rates declined across the yield curve in Q3 in anticipation and confirmation of the first Fed policy rate cut at the September FOMC meeting; the Fed cut policy rates 0.25% and for the first time in 2025 after a 9-month pause; markets are expecting two more 0.25% rate cuts by year-end
  
  
• Bloomberg Aggregate Bond index gained 2.1% in Q3 and closed +6.1% YTD, providing balanced portfolios with a solid contribution ballast amid overall volatility; benchmark 10-year Treasury Note yield dipped to 4.16% to end Q3, down 0.42% YTD
  
  
• Recession risks moderated in Q3 to sub-30% (YCharts | Estrella & Mishkin) while inflation expectations remain elevated due to the tariff uncertainty, and expectations of companies ultimately passing on tariff costs to consumers, which have been largely absorbed thus far
  
  
• President Trump’s “One Big Beautiful Bill” Act was passed in non-bipartisan form and signed into law on July 4 to begin Q3; while continuing and expanding tax-cuts already in place, the OBBB is expected to add $3 to $5 trillion in US Federal Debt over the next 10 years (JPMorgan)
  
• Q2 GDP was revised higher to 3.8% annualized, though the jobs market has weakened measurably with large downward revisions, prompting the Fed rate cut as precautionary
  
• Inflation remains sticky: August CPI and PPI inflation readings rose to 2.9% and 2.6% respectively, making the Fed’s rate cut decisions more difficult
  
  
• Q2 corporate earnings growth was stronger than expected at +12.7% and over 80% of the S&P 500 beat expectations, according to FactSet; Q3 is expected to slow to 7.9% YoY, further stretching stock valuations at current levels
  
  
• Geopolitical risks remained elevated in Q3 adding to uncertainty, though market volatility largely stabilized during the quarter, despite a couple of spikes, and remains low at this juncture  

October Market Update: Volatility Returns

• October began with a shutdown of the U.S. government in a budgetary appropriations stalemate, furloughing approximately 900,000 federal workers, though markets widely brushed it off setting new all-time highs in the Dow, S&P 500, and Nasdaq, as well as the MSCI ACWI (global) and EAFE indexes
  
• Markets were jolted on Friday, October 10, when President Trump said the US would impose a new 100% tariff on imports from China, in retaliation to China’s rare earth mineral export controls, and the anticipated upcoming meeting with Chinese President Xi is now in jeopardy
  
• Market volatility spiked on the news, and stocks across the globe sank led by Nasdaq -3.6%, Russell 2000 -3%, and S&P 500 -2.7%; MSCI EAFE index dipped 1.2%
  
• A flight to safety in bonds resulted in the Bloomberg Aggregate Bond index rising 0.43%, providing a ballast for balanced portfolios
• Markets rebounded the following week, ending October 17 with broad gains of 1.5%–2.4%, following de-escalatory comments by President Trump and positive dialogue among trade representatives. Bond yields continued to drift lower across the curve after Fed Chair Powell reaffirmed that the Federal Reserve remains on track for additional rate cuts by year-end.

The Outlook: Resiliency, Caution, and Discipline

While tariff headlines continue to fuel short-term swings, markets have shown notable resilience. We continue to emphasize discipline, diversification, and patience amid a backdrop of trade uncertainty, inflation pressures, and evolving global risks.

Keeping your focus on the long-term helps to avoid succumbing to short-term news and events that can distract from reaching your investment goals.

Investor Takeaways
•    Remain well-diversified
•    Maintain discipline and patience
•    Keep focus on the long term
•    Review your risk tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss your portfolio and any concerns.

~ Your Nelson Securities Team

*Past Performance is No Guarantee for Future Results; This article is for informational purposes only and does not constitute investment advice.