Q3 2025 Review & Outlook
by Chris Broderick Research & Portfolio Strategy Director
Rate Cuts, Trade Deals, and Strong Earnings. Power Stocks Higher in Q3
Stocks reached all-time highs in the third quarter as economic growth remained steady, tariff increases proved milder than feared, and the Federal Reserve initiated its long-awaited interest rate-cutting cycle.
Markets began the quarter by extending the year-to-date rally, buoyed by the passage of the One Big Beautiful Bill Act in early July. The legislation made the 2017 tax cuts permanent and committed billions of dollars to domestic industry development, providing the markets and the economy with a fresh dose of fiscal stimulus.1
In mid-July, second-quarter corporate earnings came in stronger than expected and, importantly, showed few signs that tariffs or policy uncertainty were weighing on results.2 Later that month, the Trump administration announced new trade agreements with key U.S. partners, including the EU, Japan, and South Korea.3 The U.S. and China also agreed to extend their trade “truce” while negotiating toward a larger trade agreement.4 These “deals” eased investor anxiety about renewed reciprocal tariffs and lowered trade-related concerns more broadly. These factors, along with stable economic and inflation readings, helped push the S&P 500 steadily higher through July.
Early August brought a brief pause to the rally following a weaker-than-expected July jobs report, which included downward revisions to May and June employment data.5 The softer labor numbers raised concerns that the job market might be losing momentum and hinted at a potential economic slowdown. However, expectations for a Federal Reserve rate cut grew in response, and Chair Jerome Powell reinforced those expectations at the Jackson Hole Economic Symposium by signaling that a September rate cut was likely.6 The prospect of lower rates helped offset employment worries, allowing stocks to continue their climb.
In September, the rally accelerated despite further signs of the labor market softening. The August jobs report showed only 22,000 new jobs–well below forecasts–but optimism around additional rate cuts kept markets supported.7 As expected, the Fed cut interest rates at its September meeting and indicated through its “dot plot” that two more cuts were likely before year-end.8 The start of the rate-cutting cycle, coupled with strong AI-related earnings from companies such as Oracle and Broadcom, propelled U.S. equity indices to new all-time highs.9
Outlook for the Fourth Quarter
Overall, the third quarter was resoundingly positive for both the economy and financial markets. Growth remained solid, inflation stable, fiscal stimulus in effect, and the Fed’s policy pivot well underway. As we enter the final quarter of 2025, the macroeconomic backdrop remains constructive: interest rates are moving lower, tariffs have yet to disrupt the economy, and growth continues at a steady pace.
That said, this environment should not be mistaken for risk-free. Several potential challenges warrant close attention.
Labor Market Softening
Multiple employment indicators suggest the labor market is losing momentum. While not yet signaling a broader slowdown, a continued rise in the unemployment rate could dampen investor confidence and pressure markets, as most analysts are not currently expecting an economic deceleration.
Persistent Inflation
Headline CPI remains just under 3%, above the Fed’s 2% target.10 Tariffs are beginning to affect more sectors of the economy, and while many analysts expect only a one-time price adjustment, there’s a risk they could drive inflation higher. If inflation reaccelerates, the Fed may need to reconsider further rate cuts—an outcome that could unsettle markets.
Policy and Trade Uncertainty
Trade and tariff policy remain sources of potential volatility. The Supreme Court is set to hear arguments on reciprocal tariffs in November. If the Court upholds a lower-court ruling invalidating certain tariffs, markets could experience short-term swings. While tariff removal might initially lift equities, renewed uncertainty around future trade policy could offset those gains.
In Summary
The macroeconomic landscape remains favorable, supported by Fed rate cuts, fiscal stimulus (via the One Big Beautiful Bill Act), and continued enthusiasm for AI-driven innovation. Still, risks around employment, inflation, and policy uncertainty remain on the horizon.
We remain vigilant in monitoring these developments and their potential impact on both the economy and your portfolio. As always, our team is dedicated to helping you navigate this evolving market environment and ensuring your financial plan stays on course.
Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.
Important Disclosure Information
Parallel Advisors, LLC (“Parallel Advisors” “we,” “us” or “our”) hereby provide these disclosures and disclaimers. You acknowledge your understanding of these disclosures and disclaimers with respect to the Parallel Advisors activities and you, including with respect to the document, information or website (“Communication”) that linked to these disclosures and disclaimers.
Information Purposes Only. Any material provided in our Communication either directly or through cross-reference to another site is for informational purposes only. Any information provided in our Communication does not purport to be, and is not intended to be, financial, legal, accounting, tax or investment advice. Parallel Advisors does not represent that the securities, products, or services discussed in our Communication are suitable or appropriate for any or all investors. The information provided, therefore, should not be viewed as financial, legal, accounting, tax or investment advice.
Past Performance. Past performance is not necessarily indicative of future results. Any investment involves significant risks, including loss of the entire investment. Future market conditions are unpredictable, and may vary significantly from current and past conditions, particularly given current worldwide market uncertainty. Some of the investment strategies presented in our Communication may involve transactions in foreign currencies. A foreign currency is a currency other than that issued by the government of the country in which you are domiciled or, in some cases, in which you reside. Transactions in foreign currencies may introduce additional risk to the investment transaction.
Risks. Persons engaging in investment activities should be aware that investing is an inherently risky activity. Depending on the nature of the investment, these risks include, but are not limited to, interest rate, foreign currency, liquidity, credit, legal, and political risk. The information contained in our Communication is based on factual assumptions that may not be applicable to the particular circumstances of any user accessing our Communication scientific assumptions that are liable to require revision due to changing circumstances, and statistical assumptions that are based on confidence levels which may require revision. For these reasons, no representations or warranties, expressed or implied, are made to the accuracy or applicability of any information contained in our Communication or any linked site to any particular viewer specifically, or to all viewers generally. Also, no representations or warranties, express or implied, are made as to the result any viewer might experience from using any of the information contained in our Communication or to any linked site.
Third-Party Sources. Links to other websites from our Communication are for convenience only. Information, including that obtained from outside sources, is believed to be correct, but the firm cannot guarantee its accuracy. Information on this website is subject to change at any time without notice. Research on the site is provided only as a sample of research and analysis. Some or all of the information contained in this report may be dated and, therefore, this information should not be the basis to purchase or sell any securities. We make no representation about whether any research led to any particular transaction or any profitable investment decision. No endorsement of any third-party products, services or information is expressed or implied by any information, material or content referred to or included on, or linked from or to our Communication.
No Investment Advice. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. All information contained herein is subject to in its entirety to a separate agreement. An investor should consider the relevant investment objectives, risks, charges and expenses carefully before investing. It remains your responsibility to advise Parallel, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.
1 https://www.uschamber.com/taxes/u-s-chamber-one-big-beautiful-bill-is-a-win-for-economic-growth-workers-and-american-communities
2 https://insight.factset.com/earnings-insight-infographic-q2-2025-by-the-numbers
3 https://www.pwc.com/us/en/services/tax/library/pwc-trump-announces-new-trade-agreements-with-key-trading-partners.html
4 https://www.reuters.com/world/china/us-china-hold-new-talks-tariff-truce-easing-path-trump-xi-meeting-2025-07-28/?
5 https://apnews.com/article/trump-tariffs-asia-wall-street-5bf5640b85f63cf7db292d0aaf26e97a
6 https://www.kiplinger.com/investing/economy/july-jobs-report-renews-rate-cut-hopes ;
https://www.cbsnews.com/news/jerome-powell-jackson-hole-speech-interest-rate-federal-reserve/
7 https://www.cbsnews.com/news/jobs-report-august-2025-economy-trump-hiring-bls/
8 https://finance.yahoo.com/news/fed-signals-2-more-cuts-in-2025-raises-gdp-forecast-for-the-year-183031677.html
9 https://www.reuters.com/business/sp-500-nasdaq-notch-record-high-closes-oracle-soars-ai-optimism-2025-09-10/? ;
https://www.reuters.com/business/media-telecom/broadcom-sees-strong-ai-growth-fiscal-2026-new-customer-addition-2025-09-04/
10 https://paralleladvisors.box.com/v/Q42025EconIndicatorsandReturns
This material is provided for informational purposes only and should not be construed as investment advice. Different types of investments involve varying degrees of risk. Discussion or information contained in this presentation does not substitute personalized investment advice from Parallel or another professional advisor of your choosing. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of Parallel Advisors, LLC (“Parallel”). Parallel cannot and does not provide warranties nor representations as to the reliability or accuracy of the content it shares.