2025 Q4 Market Outlook
As the seasons change and the days grow shorter, it’s hard not to notice how quickly time seems to move this time of year. Fall has a way of sneaking up on us and before we know it, we will be celebrating the holidays and ringing in the new year.
As we wrap up 2025, it’s important to highlight where we are as we head into the final stretch and what could be ahead for markets and the economy in 2026.
Wrapping up 2025
With the year quickly winding down, it’s a good time to pause and reflect on what we’ve seen so far in 2025. At the start of the year, we expected markets to deliver solid, but not spectacular, returns, somewhere in the high single digits. As it turns out, performance has been even stronger, with most major indices showing low double-digit gains so far.
That said, this year has also brought its fair share of volatility. Our theme for 2025 was to stay nimble, and that approach has certainly proven valuable. We saw markets start the year with strong momentum, stumble in March and April amid tariff headlines and valuation concerns and then recover just as quickly, ultimately continuing to grind higher through the summer and into fall.
Over the past quarter, in particular, earnings season has been a bright spot. Expectations were modest heading into Q3, but results have largely exceeded forecasts. With another earnings season now underway, it will be worth watching whether companies can maintain that strength as we move into the final months of 2025 and start looking ahead to 2026.
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Federal Reserve’s Rate Cuts
Another key driver for markets this year has been the Federal Reserve’s shift toward rate cuts, a theme we highlighted earlier in the year as a potential tailwind for both stocks and bonds. That expectation has largely played out. Following the Fed’s September 17th meeting, policymakers cut rates and signaled that additional cuts may continue through the end of the year. The combination of easing monetary policy and strong corporate earnings created a near-perfect backdrop for equities, fueling solid gains through the third quarter. On the fixed-income side, lower interest rates have provided some stability, though bond markets have been slower to react compared to stocks. Overall, the Fed’s pivot toward a more accommodative stance has been a major catalyst for market momentum heading into year-end.
Bond Market
When it comes to bonds, it helps to look to the yield curve, which reflects the interest rates for different maturities—from short-term notes to long-term bonds. The Fed’s rate cuts primarily influence the shortest-term rates, which is why we’ve seen two-year yields drop to some of their lowest levels since 2022. Longer-term rates, like the widely watched 10-year Treasury, have been less affected because they are shaped more by market expectations for inflation and economic growth than by Fed policy alone. While the slight decline in the 10-year yield has provided some relief, it hasn’t significantly shifted borrowing costs, such as mortgage and credit rates, yet. Overall, the Fed’s moves have been most impactful for shorter-term bonds, offering investors a modest tailwind in that segment of the market.
Commodities and Market Movement
Commodities have been a standout performer this year, with gold reaching new all-time highs and other raw materials also showing strong gains. As a result, maintaining exposure in this space has proven beneficial.
Looking Ahead
Looking ahead to the end of 2025, we still expect markets to finish the year on a positive note, though some volatility may arise in the final quarter. Overall, the picture remains positive when looking at January 1st through December 31st for investors as we close out the year.
That said, there are a few key factors to keep an eye on. First, the ongoing government shutdown hasn’t had a major market impact yet, but prolonged gridlock could start to create more uncertainty. Second, corporate earnings are entering a new cycle with higher expectations of around 8% growth, which means markets may already be pricing in strong results, leaving less room for a surprise to the upside than last quarter.
Finally, the Fed’s continued rate-cutting path will remain a critical driver for both stocks and bonds, with the actual rate decisions influencing market momentum and investor sentiment as we head into 2026. At the start of October, the Fed funds rate sits around 4-4.25%, and committee members’ projections suggest additional cuts by the end of 2025, with the potential for further easing into 2026. Markets closely watch these expectations and largely price them in, so any significant deviation from the anticipated path could create volatility in both equity and bond markets.
Recapping our Q4 2025 Outlook
As we look toward 2026, maintaining a neutral and flexible stance remains key. Staying nimble allows investors to capture upside if markets continue their current momentum, while also hedging against potential risks, whether from shifts in Fed policy, lower-than-expected earnings, or an extended government shutdown. Right now, we’re closely monitoring labor market trends, inflation data, and corporate earnings to gauge the direction of the markets as we close out 2025. Overall, our outlook remains positive. With careful positioning and a focus on adaptability, we believe we are well-prepared to navigate the final months of the year and enter 2026 poised for another strong performance.