Market Commentary & Forecast

The year 2025 surprised even the optimists. Rarely have we observed simultaneous outsized returns across equities, fixed income, precious metals and key industrial commodities. Powerful secular forces—AI investment, geopolitical realignment, potent new industrial policy, and continued healing in global supply chains—overrode concerns that tighter trade policy and geopolitical fragmentation would stifle commerce. Indeed, while GDP statistics started 2025 on a negative note, U.S. growth is still expected to notch a healthy 2% for the full year.

If ever there was a moment when markets “climbed a wall of worry,” this is one. Investors face a complicated backdrop as we enter the final quarter of 2025: lower inflation and resilient corporate earnings on one side, and shifting trade regimes, mounting fiscal concerns, and persistent geopolitical volatility on the other. All while market indices notch new highs and key P/E multiples keep expanding. Yet this feels different from other periods in which markets trended higher amidst uncertainty. It is crucial today that we go beyond the ordinary rigors of parsing conflicting economic data and earnings statements, and confront in a clear-eyed way the tectonic shifts underway in the digital economy, the structure of global manufacturing, and the geopolitical order.

The second quarter of 2025 proved that policy uncertainty is not a passing feature of the contemporary investment landscape: on the contrary, it all but defines the landscape. Defeating earlier hopes that pro-growth policies might usher in a return to macroeconomic normalcy, a sweeping new wave of U.S. trade actions in early April jolted global markets, sending equities into correction territory and creating sharp dislocations in fixed income and currency markets.

In our 2025 Outlook a few months ago, we noted that the U.S. remains a relative bright spot within a decidedly mixed global macro backdrop. While significant economic data over the past three months continues to support this view, more recent signals have suggested important shifts on the horizon, sending market volatility rising and some major U.S. equity indices briefly into “correction” territory. While we welcome the measure of resilience markets have shown in some recent trading sessions, the anxiety investors have felt for weeks is hard to dismiss as the result of normal wariness over valuations, earnings or economic fundamentals. Instead, we must contemplate the possibility that we are witnessing the beginning of profound structural changes for markets, the world economy, and even the global political order.

The past year has been marked by significant transitions: technological disruptions, geopolitical realignments, and a delicate recalibration as we continue to redefine the post-pandemic global economy. This presents a complex tapestry of challenges and opportunities as we enter 2025.

The past few months have seen continued anxiety over the health of the U.S. and global economy, diverging monetary policy paths across the developed world, human suffering and military action in Europe and the Middle East, and the pace of Artificial Intelligence (“AI”) growth and its impact on economies and communities. In a long-awaited nod to softening macro conditions, the U.S. Federal Reserve cut rates for the first time since Covid-19 wracked the world in March 2020. Just days ago, China announced a panoply of stimulus measures in an attempt to jump-start its ailing economy. Despite these many crosscurrents, markets survived a bout of volatility in early August to end the quarter with equities up, bond yields down and gold hitting all-time highs. U.S. large caps continued to make smart gains in this environment, with the S&P 500 better by 5.4% in Q3 and 21.6% YTD. As many had long hoped, equity performance also broadened in the quarter: in contrast to the extraordinary concentration of gains in a handful of megacap tech stocks that we’d seen in preceding quarters, all S&P 500 sectors are now in positive territory for the year. (To the surprise of many observers, the Utilities sector is now outperforming all other sectors on a YTD basis, benefiting from expectations of lower interest rates and surging demand for electricity; more on these trends below.)