October 2025
Quarterly Update
| Category | YTD | 2024 |
| US Large | 14.8 | 25.0 |
| US Small | 10.4 | 11.5 |
| Developed Markets ex-US | 25.7 | 4.3 |
| Emerging Markets | 28.2 | 8.1 |
| US Fixed Income | 6.1 | 1.3 |
| US High Yield | 9.6 | 9.2 |
Source: JPMorgan Guide to the Markets. Data as of September 30, 2025. Performance in %.
Backdrop
The third quarter delivered another blend of volatility, opportunity, and shifting leadership. After a strong rally through July and August, markets extended gains into September with key indices setting fresh highs. Much like Q2, broad participation was exhibited: while Mega-cap tech continued to dominate, smaller and Value stocks finally mounted comebacks.
International equities continued their hot streak. A weaker US dollar and relative valuations have contributed to their rebound. Fixed income has also continued to perform well, and rate cuts may provide additional tail winds.
US Real GDP growth is projected to have grown at a solid pace in Q3, outpacing the average GDP growth from the first half of 2025.1 There is still uncertainty around tariffs, the current government shutdown, and other potentially tighter financial conditions.
Headline inflation (CPI) has trended modestly upward: August’s reading came in at 2.9% (year over year), following 2.7% in July. Core inflation (excluding food/energy) continues to show resilience, though stickiness has emerged in used cars, energy, and transportation.2
On the labor market front, hiring softness is appearing across several sectors, and the labor force participation rate has subtly weakened. Forecasters still anticipate average unemployment of around 4.2% for 2025, though some are calling for higher estimates.
Looking Ahead
The third quarter reinforced the narrative of resilient markets riding momentum, especially in tech and innovation sectors. But beneath the surface, rotation into Small companies, Value, and International is receiving renewed interest. While the economy remains in expansion, the path forward demands vigilance: the upside is still present, but risks have grown more visible. Inflation, policy risk, and softening labor dynamics are becoming more relevant variables.
Valuations (forward-looking Price to Earnings) in US Large-cap appear pricey, though analysts expect strong earnings growth for the S&P 500 in Q3. The big question being posed: have valuations and the potential of AI gotten ahead of themselves, or will the technology be transformative enough to continue justifying market momentum?
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