As we enter the fourth quarter of 2025, we wanted to reach out to you with a recap on market movements, the forces behind them and our thoughts moving forward. The markets have definitely had challenges. These include shifting governmental policies, fear of recession and abrupt trade issues, just to name a few. Given these uncertainties, markets have been highly volatile.
A long, strange trip
After a calm first quarter, things turned ugly. Massive tariffs on virtually every U.S. trading partner were announced. Fearing a crippling trade war, stocks sold off. Even bonds, which are often seen as a safe haven during unsettling events, were hit. Investors feared that tariffs could reignite inflation eroding the value of bonds. As we have seen, stocks climbed the proverbial “wall of worry” as tariffs were delayed and renegotiated and inflation fears subsided. Against this backdrop, stocks mounted a powerful recovery. The DJIA increased 10.5% while the S&P 500 advanced 14.8% through September of 2025.
As has long been the case, the 2025 advance was led by a few stocks in the artificial intelligence/technology sector. This tech dominance has caused a historically significant concentration. While there are 500 companies represented in the S&P 500, recent data shows just 10 stocks in the index make up around 40% of the value of the index. This is the highest concentration on record. Keep in mind these stocks aren’t just driven up by speculators, a large degree of their success has resulted from strong earnings and solid business prospects. Since we are always monitoring risk, this is something we are watching closely.
Bonds, an asset class that generates fewer headlines, had their moments, as well. The Federal Reserve Open Market Committee was reluctant to lower interest rates citing potential inflation because of tariffs. The new Administration didn’t like that-- at all. Press releases, tweets and lawsuits ensued. Finally, in September the Fed cut rates by a quarter of a point. Fed funds futures contracts currently predict two more cuts this year. We will see.
The Barclays Aggregate Index rose 6% for the calendar year. Not all bonds did as well. Municipal bonds increased by just 2.7%. The variation of returns of municipals and taxable bonds can cut both ways. In 2022, a brutal year for both stocks and bonds, while the broad bond market fell roughly 12%, the Municipal Index was only down 8%. Municipal bond managers cite an oversupply of bonds because issuers sought to raise funds fearing Federal cuts. It appears this oversupply is correcting itself in the third quarter leading to better performance.
The path forward
We know that our clients and their families worked hard to generate the capital we oversee. We are happy to see the portfolios prosper. This is not, however, the time to let our guard down. Markets can turn quickly. We have already seen this in October. After months of constructive discussions toward avoiding tariffs and trade wars, a sudden contentious dispute between China and the U.S. made ominous headlines. Global stocks dropped. The decline was the worst one-day decline since the steep losses in April.
This has been a year of change, uncertainty, and volatility. We acknowledge both the challenges and opportunities that lie ahead. The key is how to navigate such an event-driven environment. We play the long game. From the historic losses of the Great Recession to the Covid pandemic and other major challenges, we confronted these events with solid principles. These include carefully listening and moving forward with discipline and restraint. Together, with diversification and risk-aware portfolios, we were able to get through the volatile times. We have done this before. Our goal is to get our clients “all the way home.”
We thank you for the confidence you have in us. If you have any questions or just want to talk, we are here for you.