Q3 2025 Market Outlook: Insights and Key Takeaways

At Linscomb Wealth, our mission is to keep you informed and prepared for the opportunities and challenges that shape your financial journey. As we close out the third quarter of 2025, we’re pleased to share insights from our investment team on recent market developments and what we’re watching as we move into the final quarter of the year.

Market Performance Update: Third Quarter in Review
In our latest quarterly discussion, moderated by President and CEO Phillip Hamman, the group covered important trends shaping today’s market environment. The discussion included Chairman Walter Christopherson, Chief Investment Officer Ryan Patterson and Director of Investment Strategy Corbin Grillo.

Third Quarter Performance
The third quarter delivered positive results across most major asset classes. That brief decline bear market in April disappeared as markets had one of the fastest comebacks to all-time highs that we’ve witnessed.

The market performance across global markets was positive:

• US Small-Cap: Up more than 12% for the quarter
• International Markets: Performance helped by a weaker dollar
• Technology & Communication Services: Up over double digits in the third quarter
• Emerging Markets: Up 10% for the quarter
• Bond Markets: Helped by reduction in short-term interest rates

Chairman Walter Christopherson noted, “It was a very good third quarter. Most of the stock and bond asset classes we track continued to increase.” September—typically the worst month of the year for stocks—turned out to be the best September in 27 years.

Technology Investment: A Growing Economic Driver
Director of Investment Strategy Corbin Grillo highlighted the increasing importance of technology investment to overall economic growth. “Tech investment is becoming a bigger driver of overall economic growth,” Corbin explained. Looking at U.S. GDP growth, the contribution from tech investment has gotten bigger and bigger over the past couple of years.

Substantial dollar amounts for technology investment are happening this year and are forecasted to continue in the years to come. Tech investment is becoming a more significant part of the overall economy, and growth is increasingly tied to this continued investment in technology and tech infrastructure.

The Global Nature of Technology
While technology is often viewed as a US-centric trade, the reality is more nuanced. “There are actually a lot of very important companies, whether semiconductors or elsewhere in the supply chain that are in emerging markets,” Corbin noted. “That focus is not just a US story. Investors are finding some value there overseas as well.”

Federal Reserve and Monetary Policy Update
Chief Investment Officer Ryan Patterson provided insights on Federal Reserve policy actions. During September, the Federal Reserve cut the Fed funds rate by a quarter percent—a move that was highly anticipated by the market.

The effective Fed funds rate currently stands between 4% and 4.25%, while CPI is just below 3%. “The Fed funds rate is actually still restrictive right now due to the fact that it is over that CPI rate,” Ryan explained. The market anticipates at least two more rate cuts this year, probably a quarter percent for the next two meetings and possibly continuing on next year as well.

The investment team does not feel that there’s a lot of risk of inflation picking up as the Fed funds rate decreases.

Employment and Consumer Health
Job growth has been slowing, though it’s still positive. This slowing provides some concern and gives the Fed leeway to continue cutting rates this year.

Ryan highlighted a key metric the team monitors closely: the four-week moving average of initial jobless claims, which essentially shows layoffs. “That’s been fairly flat for a while, and we’ve shown that 300,000 mark there. If we begin to see it creep up towards that number, we do believe that there’s likely more risk in the system. So right now, it’s stayed fairly flat.”

Despite fairly negative consumer sentiment, consumer spending is still very good. “People may feel bad, but maybe what they’re doing is to overcome those feelings is going out and spending,” Walter observed. Retail sales are quite healthy. There is a lot of spending going to the technology area, which is making up for some of the weakness in the residential real estate market, which is really not doing well at all as housing has become quite expensive.

Ryan emphasized that the U.S. economy is essentially made up of 70% of the U.S. consumer, making employment stability critical. The U.S. consumer looks pretty good, and they’re keeping their job and not getting laid off at the moment.

Looking Ahead: Key Factors to Watch
The Investment Committee highlighted several areas of focus for the fourth quarter and beyond:

Market Concentration
Ryan Patterson drew attention to an important structural consideration: “The top 10 companies within the S&P 500, their market cap…those top 10 companies are almost 40% of the index. So it’s very concentrated.” Looking back through history, going all the way to the 90s, on average it was far below that 40%.

“A lot of people think of owning the S&P 500 as being a very diversified portfolio. That’s true, but it’s more concentrated than it has been in a long time,” Ryan explained. The team likes adding international exposure, small cap, mid cap exposure, as well as fixed income, where it makes sense to increase that diversification.

Technology Adoption Beyond the Tech Sector
A critical question the committee is monitoring: What’s the potential return on technology investment? While it’s great that companies are investing in the future, and the team is confident it will eventually lead to productivity benefits, they really want to see these technologies spread out from just being concentrated in the tech sector.

Analysis from the Financial Times looked through 10K filings from S&P 500 companies year by year to see how many are talking about artificial intelligence and what it might mean for their business. The findings show increases from 2022 to 2024. Last year, over 80% of S&P 500 companies were talking about how it might impact their business.

However, in 2025, the number of companies mentioning it has actually shrunk quite a bit. Most of those that are talking about it describe the impact as mixed—there’s not an obvious positive or negative impact.

“We really don’t know yet” what the return on this big investment is going to be, Corbin noted. “It’s still unclear. And even for businesses that are outside of the tech sector and excited about the potential, there’s not an obvious clear path for how they’re going to use it. We’re still in a sort of wait and see trial and error mode.”

Tariff Impact
Tariffs are being challenged in court and more clarity is expected in the relatively near future. For the time being, tariffs are in place. Monthly tariff revenue is definitely increasing and becoming a bigger and bigger source of revenue for the US government.

“You would have thought there would have been possibly some more noticeable impact on corporate profitability and business operations. There hasn’t been a ton of that yet, granted the tariffs are still new,” Corbin observed. There’s not an obvious negative impact on the broader business environment just yet, but it’s something the team is keeping an eye on.

Government Shutdown
The committee addressed the ongoing government shutdown. “We’ve gone through this before,” Walter noted. “The longest shutdown we’ve been through is 35 days. And they tend not to have big impacts at all on how the stock market performs.”

While Congressional stalemates are discouraging, they do usually work it out because at the end of the day, they want government to be open and functioning. There has not been much of a market reaction to this point.

What This Means for You
The third quarter demonstrated continued market resilience and momentum heading into the final quarter of 2025. Consider how this market environment aligns with your financial goals and long-term plans.

Our team continues watching market conditions and economic data that could affect portfolio positioning, particularly:

• The concentration risk in large-cap U.S. equities and the benefits of broader diversification
• Technology adoption and return on investment beyond the technology sector
• Federal Reserve policy decisions and the trajectory of interest rate cuts
• Employment trends and consumer spending patterns
• Tariff developments and potential impacts on corporate earnings
• Resolution of government funding issues

Contact your Linscomb Wealth advisor with questions about how these market developments apply to your situation. We’re here to help you navigate these changing market conditions.

Stay Informed with Linscomb Wealth
Markets continue to evolve and staying informed helps build financial confidence. As we enter the fourth quarter, we remain focused on the factors that will shape market performance in the months ahead. We invite you to watch our Q3 Market Update Video for our investment team’s complete analysis.

For more detailed analysis or to schedule a portfolio review with your advisor, please contact our team today.

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