Oct 02 • 3 min read
State of the Markets (Q3 Update)
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Q3 is in the books—so what really mattered? Markets were noisy, headlines were loud, and 2025 has been full of surprises. But underneath the distractions, the signal is clear: Consumers remain resilient, companies are adapting, and there are still reasons for long-term optimism. In today’s recap, I'm sharing updates on:
My goal is to cut through the noise and help you stay focused on the bigger, long-term picture as we head into the final chapter of the year. Asset Class PerformanceHere are the 2025 market returns through the third quarter [total return as of 9/30/25]: Stock Indexes:
Bond Indexes:
The State of the Consumer1. Consumer Net Worth at Record Levels Despite the constant drumbeat of negative headlines, consumer balance sheets tell a different story. In the second quarter, household and nonprofit net worth rose by over $7 trillion, reaching a record $176 trillion. Liabilities, by comparison, grew just $183 billion. The result: household leverage (the ratio of debt to assets) has dropped to its lowest level in nearly 60 years. In short, U.S. households remain in remarkably strong financial shape. 2. A Break for Mortgage Rates For would-be homebuyers, there’s finally some good news. Ahead of the Fed’s recent, widely anticipated rate cut, mortgage rates dipped to an 11-month low. While mortgage rates track the 10-year Treasury more closely than short-term rates, expectations for further Fed cuts may help push borrowing costs even lower—making housing at least somewhat more affordable. 3. Labor Market Cooling The job market, however, is showing signs of slowing. Unemployment has ticked up slightly, and job openings have declined meaningfully from recent highs. Fewer opportunities mean more competition, which could dampen wage growth in the months ahead—an unwelcome development for workers navigating higher costs of living. The State of Companies1. Earnings and Profit Margins at Historic Highs Goldman Sachs strategist David Kostin recently pointed out an unusual dynamic: "A cooling labor market is a tailwind to corporate profits, all else equal." We’re beginning to see this play out even as earnings and margins were already on the rise. While slower wage growth isn’t something to cheer for broadly, as long-term investors it can mean improved efficiency and stronger bottom lines for the companies we own. The key phrase here, of course, is “all else equal”—since many other variables ultimately drive profitability. 2. Record-Breaking Stock Buybacks Companies are also returning capital to shareholders at a record pace. Despite elevated stock prices, buybacks are on track to exceed $1.1 trillion this year—an all-time high. Although companies are repurchasing shares at relatively high valuations, buybacks still provide long-term benefits for shareholders. With fewer shares outstanding, each investor ends up owning a slightly larger piece of the company—and a larger claim on its future earnings. The State of Investing1. The Fed Finally Cuts Rates Heading into 2025, many expected interest rates to fall quickly—possibly toward 3%. Instead, it wasn’t until September that the Fed delivered its first cut since December 2024, and it was just 0.25%. The lesson: treat forecasts with skepticism. That said, markets still anticipate two more quarter-point cuts before year-end. 2. Valuations Remain Elevated By most metrics, stocks are historically expensive. But history reminds us that high valuations don’t always spell poor returns—ten years ago markets looked pricey too, yet performance since has been stellar. The takeaway? Companies have proven more profitable and resilient than many imagined. With efficiency gains from A.I. and ongoing technological advances, it wouldn’t be surprising if the next decade defies expectations once again. 3. Staying the Course Pays Off This year provided another reminder of why patience matters. From January to April, markets slid nearly 18%, flirting with a bear market. Yet today they’re up 14% year-to-date, well beyond a simple rebound. Those who stayed the course were rewarded—yet again—with healthy gains. 4. More Good News Beneath the Headlines Despite all the noise, several economic indicators are flashing green. Policy uncertainty is easing, consumers feel more confident, companies are reinvesting, banks are lending, bankruptcies are trending lower, and new business formation remains near multi-decade highs. Yes, inflation is still a concern, but the broader economy appears to be on very solid footing. Closing ThoughtsThe third quarter was noisy, but the signal is clear: resilience is winning out. Consumers remain financially strong, companies continue to adapt, and investors who stayed patient have been rewarded with solid gains. That doesn’t mean challenges have disappeared; slower job growth, elevated valuations, and inflation remain real headwinds. But history reminds us that innovation, efficiency, and human progress have consistently pushed markets higher over time. As we turn the corner into the final months of 2025, the key is perspective. By staying disciplined and focused on the long term, we give ourselves the best chance to capture the opportunities that lie ahead. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |