Stocks soared in the third quarter of 2025, fueled by strong economic data, solid corporate earnings, and hints from the Federal Reserve that it might ease up on interest rates. Impressive corporate earnings and a new trade deal with Japan pushed the Nasdaq past 21,000 for the first time.²,³ Investors were initially cautious when the Fed decided to keep interest rates steady, but optimism returned as job growth slowed and inflation eased, suggesting rate cuts might be coming. ⁴,⁵ Fed Chair Jerome Powell’s speech at the Jackson Hole symposium in August reinforced this hope, noting that protecting jobs was now a bigger concern than fighting inflation.⁶ This sent stocks, especially tech, soaring, though Powell’s later warning about high market valuations briefly paused the rally.⁷
By the end of September, the Fed cut rates by a quarter point, the Dow hit an all-time high, and the S&P 500 and Nasdaq finished just below their own records, respectively.⁸ Looking ahead, investor confidence remains strong, supported by cooling inflation and steady economic growth. However, challenges like ongoing trade tensions and a recent government shutdown could create an opening for volatility to reenter the conversation.
ECONOMIC CONDITIONS:
U.S. – Jobs Soften, Wage Growth Holds
- The economy grew 8% in Q2, up from an initial estimate of 3.0%, thanks to strong consumer spending. This was a rebound from a 0.5% contraction in Q1.
- Job growth slowed, with only 22,000 jobs added in August, well below the 75,000 Unemployment rose to 4.3%, the highest in nearly four years, though wage growth met expectations at 3.7%.[14]
- Housing starts dropped 5% in August, the biggest decline since May, as high mortgage rates kept buyers at bay. Both single-family (-7.0%) and multifamily (-11.0%) homes took a hit.[17]
International: Resilient
- The services sector expanded in Germany, Italy, and Spain, pointing to strong regional consumer sentiment and healthy demand. France lagged amid ongoing political uncertainty following the PM’s resignation after his fiscal reforms failed to pass. Exports remained weak, declining for the 28th straight month, reflecting sluggish global trade (source: HCOB Flash Eurozone PMI for September). European manufacturing remains constrained by soft foreign demand and elevated input costs.
- European Central Bank (ECB) President Christine Lagarde said that after a spike in inflation between 2022 – 2024, , price pressures are nearing the 2% target. Despite new U.S. tariffs, Europe’s economy has held up better than expected. In the UK, the FTSE 100 had its best quarter since late 2022, helped by a weaker pound and strength in tech, communications, and basic materials, the latter lifted by higher gold prices and renewed IPO activity on the London Stock Exchange. UK inflation stayed at 3.8% in August, prompting the Bank of England to cut rates to 4.0% — its first cut since 2020 — signaling a gradual policy pivot toward supporting growth.
EQUITIES: Onward and Upward
U.S. EQUITIES: U.S. stocks had a banner quarter. The S&P 500 climbed 7.79%, the Dow Jones Industrial Average rose 5.22%, and the Nasdaq Composite surged 11.24%, reflecting renewed enthusiasm for tech-led growth sectors.¹ Investors were excited about expected Fed rate cuts in September (with more possible by year-end), strong earnings, and enthusiasm for AI, which lifted tech-heavy markets. Tech and communication services shone, while healthcare and energy lagged, with energy hurt by falling oil prices.
DEVELOPED INTERNATIONAL FIXED INCOME: Internationally, the MSCI
EAFE Index gained 4.23% in Q3, trailing U.S. markets but up 22.34% year-to-date. European markets mostly rose, with Spain (+10.60%), Italy (+7.37%), the UK (+6.73%), and France (+3.00%) posting gains, while Germany (-0.12%) slipped. Pacific Rim markets also did well: China (+11.56%), South Korea (+11.49%), Japan (+10.98%), Australia (+3.59%), and Mexico (+9.51%) all saw strong growth in Q3. [12]

FIXED INCOME: Rising Yields
U.S. FIXED INCOME: The Federal Open Market Committee (FOMC) held rates steady in Q3. At the Fed’s annual symposium in Jackson Hole, Fed Chair Jerome Powell described a “curious” labor market where both job supply and demand were dropping, suggesting some softening could help control inflation. [22] In September, the Fed cut rates by a quarter point to a 4.0–4.25% range and hinted at more cuts before year-end. [23]

DEVELOPED INTERNATIONAL FIXED INCOME: Government bond markets varied in Q3. U.S. Treasury yields fell as weak job data and stable inflation fueled rate-cut expectations. In contrast, UK, eurozone, and Japanese yields rose due to stronger local outlooks and easing political tensions. The ECB held rates steady, suggesting its easing phase might be over, while the Bank of England cut rates to 4.0% but took a cautious approach. Credit markets did well, with U.S. investment-grade bonds tightening to multi-decade lows and European high-yield bonds posting strong returns despite slightly trailing the U.S.
QUARTERLY FOCUS: Government Shutdown
The U.S. government shut down on October 1 after missing a budget deadline. Shutdowns like this are often more about political posturing than major economic disruptions, and history shows they’re usually short-lived, averaging eight days since 1976 (the longest was 34 days in 2018–2019; see chart below). Markets typically shrug them off, with the S&P 500 averaging 1.2% and 2.9% gains one and three months after resolutions.
Still, this shutdown comes amid intense political divides. Republicans need Democratic support to pass a spending bill, but talks are stuck. Democrats want healthcare concessions, like reversing Medicaid cuts, while Republicans push for reductions in certain public-sector areas. A prolonged standoff could delay key economic data, like October’s jobs report, and cause short-term volatility in industries like defense, aerospace, and life sciences, which rely on government contracts.

Despite this, investors are focused on the big picture: corporate earnings, consumer spending, business investment, inflation, and interest rates. Stocks have been on a tear since April, and while a 5–10% dip wouldn’t be shocking, it’d likely be a brief pause in a broader bull market. The economy is holding up, earnings are solid, the Fed is cutting rates, and long-term trends like AI-driven growth and fiscal support from the One Big Beautiful Bill Act (OBBBA) keep the outlook positive. Investors should tune out the political noise and see any market dips as potential buying opportunities.
DPWM OUTLOOK: Seizing Opportunity
The global economy looks solid heading into Q4, but the road ahead may be bumpy. Growth is slowing, with weaker job numbers balanced by strong consumer spending. Investors are watching to see if this slowdown stays manageable or turns disruptive. For now, we expect a “soft landing,” where the economy cools enough to tame inflation without tipping into recession. A sharp drop in hiring or spending could shift that outlook, but recent resiliency highlights the importance of maintaining diversified exposure across asset classes and sectors.
The Federal Reserve’s September rate cut ended a nine-month pause, kicking off a gradual easing cycle. Markets expect two more cuts by year-end, but that could change if inflation holds steady or jobs data surprises. This uncertainty makes flexibility and diversification—across geographies, durations, and income sources—key to handling shifting policies and interest rates.
Corporate earnings will also drive market mood in Q4. Despite trade tensions and policy uncertainty, profits have held up well. As Q3 earnings roll in, investors will focus on companies’ outlooks for tariffs, profit margins, and 2026. Earnings growth may slow, and sectors could perform differently, so spreading investments across tech, healthcare, financials, and energy can help balance returns. AI remains a major growth driver, with spending plans stretching into 2026, but high valuations in tech and AI mean a single misstep could shake markets. Diversifying into international stocks, bonds, and safer assets can cushion against risks tied to one sector.
Despite this year’s ups and downs, markets have shown resilience, proving the value of a balanced approach. As we head into Q4, we’re focused on keeping clients diversified and disciplined—ready to seize opportunities while bracing for occasional volatility. Diversification is the steadiest path forward. As always, we’re here to answer your questions and discuss your portfolio.
CITATIONS:
1. WSJ.com, September 30, 2025
2. CNBC.com, July 3, 2025
3. CNBC.com, July 23, 2025
4. CNBC.com, July 30, 2025
5. CNBC.com, August 13, 2025
6. CNBC.com, August 24, 2025
7. CNBC.com, September 18, 2025
8. CNBC.com, September 30, 2025
9. Sectorspdrs.com, September 30, 2025
10. Bankrate.com, January 14, 2025
11. AtlantaFed.org, September 30, 2025
12. MSCI, September 30, 2025
13. WSJ.com, September 25, 2025
14. MarketWatch.com, September 5, 2025
15. WSJ.com, September 16, 2025
16. KPMG.com, September 16, 2025
17. KPMG.com, September 17, 2025
18. CNBC.com, September 25, 2025
19. CNBC.com, September 24, 2025
20. WSJ.com, September 11, 2025
21. KPMG.com, September 25, 2025
22. WSJ.com, August 23, 2025
23. WSJ.com, September 17, 2025
24. NRF.com, August 19, 2025
25. Reader’s Digest, July 17, 2025

Denver Private Wealth Management is an independent fee-based financial planning practice with 80+ years of experience in the financial industry. DPWM customizes portfolios based on your financial goals and works closely with you, your tax advisors and estate attorneys to form a comprehensive view of your financial situation. For more information or to set up a free consultation, contact us at info@denverpwm.com.
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Graham Ditus


Tim Kulick, CPA®
Drew Kelleher, CFP®



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