Q3 Market Update for Informed Investors
As we move into the final stretch of 2025, we want to reflect on the economic landscape and share perspective on what’s ahead.
The third quarter brought continued growth but at a slower place.
Consumer spending remained strong, particularly in services like travel, dining, and entertainment. However, rising prices have begun to temper this momentum. Higher interest rates and increased costs from tariffs are starting to weigh on purchases of durable goods—such as homes, vehicles, and appliances—which have become more expensive.
At North Star, we believe that staying informed is key to navigating any market environment.
Key Highlights:
- Interest Rates: The Federal Reserve has a dual mandate to maintain full employment and control prices, and earlier this year they raised interest rates to fight inflation. Despite persistent inflation and a softening labor market, in mid-September the Fed made its first rate cut of the year.
- Inflation: An inflation rate of 2.9% showed prices higher than normal and above the Federal Reserve’s goal of 2%
- Jobs: The labor market remains strong, with unemployment low at around 3.8%. Many industries were still hiring, but all numbers are starting to show signs of weakness.
- Tariffs: Ongoing uncertainty around tariffs, both in scope and amount, is creating headwinds for certain sectors.
- GPD Growth: The economy grew during Q3 but at a rate slower than Q2.
- Stock Markets: Stock markets continued to gain but got more unstable as investors were unsure if the Fed would raise rates or start cutting them. A small number of companies continue to drive the markets.
Overall, while the economy is still growing, signs of a potential slowdown or “soft spot” are beginning to appear. At this time, no major recession or market correction is expected.
Fourth Quarter Outlook
The fourth quarter began with a government shutdown as Congress could not pass an appropriation bill for next budget cycle.
The big question will be how long will this shutdown last? Recent averages are just under two weeks with the longest being 35 days. The longer the government shutdown lasts the more it has the potential to affect economy and markets.
The Federal Reserve will continue to struggle with a balancing act of inflation concerns and strength of the job market, but all expectations are that the Fed will continue with a couple more rate cuts this year.
Growth is projected to slow, with consumers remaining the primary engine of economic activity. Interest rates and potential higher costs from tariffs will continue to weigh on consumer decisions. Longer term, lower expected interest rates, lower taxes from the One Big Beautiful Bill, and continued low unemployment should keep consumer confidence and spending strong.
We at North Star Financial continue to believe in long-term diversified portfolio management, your goals and plan should be matched to your investment portfolio. Continue to stay the course during any market volatility and let the long term nature of the stock market
We welcome investment discussions, should you have any questions or concerns, or if there is a change in your investment time horizon or financial circumstances, please feel free to contact us at your convenience.
Written by North Star Investment Resource Center
| YTD | 1-Year | 3-Year | 5-Year | 10-Year | |
|---|---|---|---|---|---|
| S&P500 | 14.8% | 17.60% | 24.95% | 16.47% | 15.3% |
| US Small Caps | 10.4% | 10.76% | 15.21% | 11.56% | 9.77% |
| Int’l Stocks | 25.7% | 14.99% | 21.70% | 11.15% | 8.17% |
| Bond Market | 6.13% | 2.88% | 4.93% | -0.45% | 1.84% |
Returns over 1 year are annualized. S&P500 index, US Small Caps use Russell 2000 index, international stocks use MSCI EAFA NR USD, Bond Market use Bloomberg US Agg Bond TR USD.