Author: David I. Templeton, CFA, Principal and Portfolio Manager
The dog days of summer for 2025 saw a continuation of the market’s rally off the April lows, following the volatility brought on by the tariff announcement or Liberation Day. Risk on assets, such as technology, small caps and emerging markets, were among the top performers in the third quarter. Indeed, the tech heavy Nasdaq led the charge with an 11.24% return, followed by a 10.70% return for Emerging Markets. Small Cap stocks also finally generated a favorable return, turning positive for the year with a third quarter return of 8.66%.
We believe earnings growth will be key for further stock market gains as stock valuations look rich for some segments of the market. Additional interest rate cuts by the Fed would be a tailwind for the economy and earnings. An extended government shutdown could have a short-term negative impact on the economy, but equity markets do not seem overly concerned about this risk presently. While one could see a pause in the stock market after the strong rally from the April lows, the fourth quarter has historically been the best three-month period of the year for stocks.
More of our thoughts on navigating the current environment are contained in the Fall 2025 Investor Letter.
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