Shakespeare wrote:
“All the world’s a stage,
And men and women are merely players;
They have their exits and their entrances;
And one man in his time plays many parts.”
If the U.S. government is the actor on stage, investors might wonder what kind of play we’re watching—and what act we’re in. Comedy, tragedy, or farce? Whatever the genre, it’s certainly dramatic.
For investors, the third quarter of 2025 was a strong one across both equity and fixed income markets. Despite slowing growth and political uncertainty, the economy proved resilient, and stocks continued to reach record highs. Year to date, the Dow rose over 8%, the S&P 500 gained more than 13%, and the NASDAQ climbed more than 16%. The disparity among these indices reflects the continued dominance of a handful of large technology companies. As we’ve noted in previous commentaries, the AI boom continues to drive billions of dollars in capital expenditures to build the infrastructure needed to power these systems. It’s not only the firms developing AI software, but also those producing the related hardware and energy capacity that are benefiting.
Mid- and small-cap stocks, while posting solid third-quarter results, continue to lag large caps for the year. However, declining interest rates should provide support, as these companies tend to rely more heavily on credit markets.
In fixed income, the headline event was the Federal Reserve’s first rate cut of 2025—lowering the Fed Funds Target Rate by 0.25% to a 4.00%–4.25% range. Rates generally fell across the yield curve, boosting bond prices and supporting equity valuations.
The Fed continues to balance its dual mandate of maximum employment and price stability. With the economy moderating, it faces competing goals: easing rates to support jobs while keeping them high enough to contain inflation.
At the long end of the curve, yields on 10- and 30-year Treasuries appear to have peaked. Mortgage rates have fallen from around 7% to roughly 6.3%—good news for the housing market. While still elevated compared to the past 15 years, these rates remain below long-term averages. Given the government’s heavy debt load and limited fiscal restraint, longer-term rates are unlikely to fall much further and could rise again.
For client portfolios, we’ve gradually increased equity exposure for those comfortable with additional market risk. With short-term rates declining, yields on money market funds and short-term debt will become less attractive. Longer-term bonds still offer appealing yields, and we’ll continue adding them selectively to replace maturing securities or deploy cash.
As for the broader “play” unfolding in Washington, perhaps it’s time for an intermission—to focus on the more personal stories that matter most in our own homes and communities. While you tend to your own “acts” of family, work, and purpose, we’ll stay focused on navigating the markets and helping you reach your financial goals. Our approach remains the same: tune out the noise, stay disciplined, and invest where it makes sense for you.
