AE Wealth Management Quarterly Market Report for Q3 2025

Markets reached new highs in Q3 as the One Big Beautiful Bill passed and the Fed cut rates. Despite policy uncertainties and mixed economic signals, disciplined investors were rewarded with solid performance.

The third quarter of 2025 delivered on the promise of reduced volatility compared to the first half of the year, though significant developments continued to shape market performance. After navigating tariff uncertainties and policy implementation challenges in the first half of the year, markets demonstrated resilience by hitting new highs in Q3, rewarding patient investors who maintained their long-term perspective.

Markets Deliver Steady Performance

The third quarter proved to be a period of relative calm compared to the tumultuous first half of the year. One big piece of news came early in the quarter, when the One Big Beautiful Bill was passed into law on July 4th.¹ The bill’s passage helped remove some of the major concerns about tax rates reverting to higher pre-2017 levels. Markets welcomed this news, much of which had been expected and was already priced in during the recovery from April’s tariff-related lows.

On the trade front, the quarter featured both progress and setbacks in tariff negotiations.² Some bilateral deals were successfully negotiated while conversations continued for others. Court challenges to President Trump’s tariff policies emerged during the quarter, though the administration appeared undeterred in its efforts to reshape global trade relationships using tariffs and other policy tools.³

Equity Performance as of Sept. 30, 2025⁴

Economic Fundamentals Show Mixed Signals

The economy delivered encouraging news with second-quarter gross domestic product (GDP) rebounding to 3.3% annual growth following the first quarter’s -0.5% result.⁴ The first-quarter decline was largely attributed to elevated imports ahead of tariff announcements rather than underlying economic weakness. The Atlanta Fed’s projection of 3.1% GDP expansion in the third quarter suggested continued economic momentum.⁵

But employment data presented a more concerning picture. Revised jobs numbers revealed more than 900,000 fewer jobs were created from March 2024 to March 2025 than originally reported, raising questions about the accuracy of economic data and the underlying strength of the labor market.⁶ The unemployment rate and job creation deterioration became increasingly important factors in monetary policy discussions.

Inflation remained mostly stuck throughout the quarter, above the Federal Reserve’s 2% target but showing some signs of moderation.⁷ This persistent inflation, combined with weakening employment data, created a challenging environment for monetary policy decisions.

Federal Reserve Finally Acts

With jobs data pointing to a looming economic slowdown, the Fed finally cut rates by 25 basis points (0.25%) in mid-September.⁸ The cut came amid intense pressure from the Trump administration, which included attempts to fire Fed governor Lisa Cook for accusations of mortgage fraud and the firing of the head of the Bureau of Labor Statistics over concerns about data manipulation for political reasons.^9,10

The rate cut marked a significant shift in Fed policy, driven primarily by deteriorating employment conditions rather than achieving the central bank’s inflation target. The key questions heading into the fourth quarter center on how aggressively the Fed will continue cutting rates and whether policy changes will arrive in time to prevent further economic softening.

Political and Policy Developments

The quarter’s news cycle was dominated by various non-economic issues, including the National Guard deployment to fight crime in Washington, D.C. and promises to extend similar measures to other high-crime cities.^11,12 International relations captured significant attention with military actions including strikes on Venezuelan drug boats and the bombing of Iran’s nuclear weapons facilities.^13,14 The shooting of conservative activist Charlie Kirk also dominated headlines late in the quarter.¹⁵

News about the Department of Government Efficiency (DOGE) appeared to lose momentum early in the third quarter, with reporting on its efforts largely ceasing. This development suggests bureaucratic resistance may have successfully weathered the initial reform push, representing a missed opportunity for meaningful government spending reduction and accountability improvements.

Looking Ahead

As we enter the final quarter of 2025, several key factors will likely drive market performance. The path and pace of Fed rate cuts will be closely watched, particularly given the mixed economic signals and ongoing political pressure. The resolution of remaining trade disputes and tariff negotiations could provide either positive or negative catalysts for market sentiment.

The sustainability of economic growth remains a central question, especially given the disconnect between GDP growth and employment trends. Whether the economy can maintain momentum or will require additional policy support will be important for both market performance and investor confidence.

For investors, this environment reinforces the importance of maintaining discipline and focusing on long-term objectives rather than reacting to the constant stream of headlines. Those who have allowed their portfolio allocations to drift from target levels may want to take advantage of current conditions to rebalance appropriately. Year-end tax planning opportunities should also be carefully considered, including gain and loss management strategies.

This is an opportune time to review your financial plan with your advisor, ensuring your goals and risk tolerance remain aligned with your investment strategy. The remainder of 2025 will likely continue to test investor patience, but history suggests that disciplined, long-term-focused investors can remain confident that they are working toward their goals.

SOURCES

¹ Daniel Bunn, Alex Muresianu and William McBride. Tax Foundation. July 9, 2025. “The Good, the Bad, and the Ugly in the One Big Beautiful Bill Act.” https://taxfoundation.org/blog/one-big-beautiful-bill-pros-cons/. Accessed Sept. 15, 2025.

² Reuters. Aug. 21, 2025. “Major developments in Trump’s trade war.” https://www.reuters.com/business/autos-transportation/major-developments-trumps-trade-war-2025-05-26/. Accessed Sept. 15, 2025.

³ Andrew Chung. Reuters. Sept. 9, 2025. “US Supreme Court to decide legality of Trump’s tariffs.” https://www.reuters.com/legal/government/us-supreme-court-decide-legality-trumps-tariffs-2025-09-09/. Accessed Sept. 15, 2025.

⁴ Bureau of Economic Analysis. Aug. 28, 2025. “Gross Domestic Product, 2nd Quarter 2025 (Second Estimate) and Corporate Profits (Preliminary).” https://www.bea.gov/news/2025/gross-domestic-product-2nd-quarter-2025-second-estimate-and-corporate-profits-preliminary. Accessed Sept. 15, 2025.

⁵ Federal Reserve Bank of Atlanta. Sept. 10, 2025. “GDPNow™.” https://www.atlantafed.org/cqer/research/gdpnow. Accessed Sept. 15, 2025.

⁶ Diccon Hyatt. Investopedia. Sept. 9, 2025. “The Economy Just Lost Nearly A Million Jobs, On Paper.” https://www.investopedia.com/the-economy-just-lost-nearly-a-million-jobs-on-paper-11806319. Accessed Sept. 15, 2025.

⁷ U.S. Bureau of Labor Statistics. Sept. 11, 2025. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed Sept. 15, 2025.

⁸ Jeff Cox. CNBC. Sept. 17, 2025. “Fed approves quarter-point interest rate cut and sees two more coming this year.” https://www.cnbc.com/2025/09/17/fed-rate-decision-september-2025.html. Accessed Sept. 17, 2025.

⁹ Joe Walsh. CBS News. Sept. 12, 2025. “Trump administration asks appeals court to let president fire Fed governor Lisa Cook before key meeting.” https://www.cbsnews.com/news/trump-court-fire-federal-reserve-lisa-cook-interest-rate-meeting-fomc/. Accessed Sept. 15, 2025.

¹⁰ Steve Kopack, Monica Alba and Laura Strickler. NBC News. Aug. 1, 2025. “Trump fires labor statistics boss hours after the release of weak jobs report.” https://www.nbcnews.com/business/economy/trump-orders-firing-bls-commissioner-weak-jobs-report-rcna222531. Accessed Sept. 15, 2025.

¹¹ The White House. Aug. 11, 2025. “Restoring Law and Order in the District of Columbia.” https://www.whitehouse.gov/presidential-actions/2025/08/restoring-law-and-order-in-the-district-of-columbia/. Accessed Sept. 15, 2025.

¹² Joey Garrison, et al. USA Today. Sept. 12, 2025. “Trump says National Guard troops heading to Memphis to fight crime.” https://www.usatoday.com/story/news/politics/2025/09/12/trump-announces-national-guard-deploying-to-memphis/86110169007/. Accessed Sept. 15, 2025.

¹³ Eleanor Watson and Caitlin Yilek. CBS News. Sept. 11, 2025. “Alleged drug-smuggling boat from Venezuela was turning back when hit, sources say.” https://www.cbsnews.com/news/venezuela-drug-boat-turning-around-us-strike/. Accessed Sept. 15, 2025.

¹⁴ Joe Hernandez. NPR. June 23, 2025. “4 things to know about the U.S. airstrikes on Iran.” https://www.npr.org/2025/06/23/nx-s1-5441791/takeaways-us-airstrikes-iran-nuclear-trump. Accessed Sept. 15, 2025.¹⁵ James Oliphant and Bo Erickson. Reuters. Sept. 14, 2025. “Charlie Kirk shooting suspect not cooperating with authorities, Utah governor says.” https://www.reuters.com/world/us/charlie-kirk-shooting-suspect-not-cooperating-with-authorities-utah-governor-2025-09-15/. Accessed Sept. 15, 2025.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security product.

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