Quarterly Webinar: Q3 2025 Market and Economic Themes

Please join our Chief Investment Officer, Mike Minter, for our quarterly webinar (pre-recorded below) where we discuss ten relevant market and economic themes heading into the 3rd quarter of 2025. We will also be recapping the 2nd quarter 2025 asset class performance and relevant metrics.

Click here for a PDF copy of the Q3 2025 Market and Economic Themes slides and important disclosures.

Q3 2025 Market and Economic Themes

Video Summary Below

Key Sections and Slides

1. Market Recap – Key Headlines From Last Quarter

• The second quarter was full of big swings in the market, and almost all of it tied back to trade policy.
• We started Q2 with “Liberation Day”—that’s when the White House announced new global tariffs—and the S&P 500 promptly dropped more than 10% in just four trading days.
• By April 9th, things reversed quickly when most reciprocal tariffs were paused, except for China, and the market had one of its best one-day gains in history—up nearly 10%.
• From there, momentum built: we had a nine-day winning streak in April, and by mid-May, the U.S. and China announced a trade agreement.
• Even with some bumps—like Moody’s downgrading U.S. credit, a court ruling tariffs unconstitutional, and geopolitical tensions pushing oil prices higher—the S&P 500 still gained more than 6% for the quarter and closed at an all-time high.
• The big picture? A lot happened, but the market ultimately shook it off and kept climbing.

2. Stock Market – Nasdaq’s Historic Rebound

• One of the standout stories was the Nasdaq, which surged 25% from early April to early June.
• That kind of two-month gain puts it in the top 1% of returns going back 25 years—so it’s extremely rare.
• Historically, we’ve only seen rebounds like this after big selloffs: think dot-com bust, the 2008 financial crisis, and the 2020 pandemic.
• The lesson? Big declines often set up powerful rebounds. It’s uncomfortable in the moment, but volatility can create opportunities.

3. U.S. Tariff Timeline

• This year has been all about shifting trade policy.
• In February and March, tariffs increased—China saw a 10% tariff on all goods, Canada and Mexico faced 25% on most goods, and global steel and aluminum imports were hit with 25%.
• By early April, it escalated further with sweeping tariffs on auto imports and a baseline 10% tariff on most goods. Then, just days later, the administration paused reciprocal tariffs for most countries except China.
• By May, we had an agreement with China that reduced tariffs significantly for 90 days. A court even ruled some tariffs unconstitutional at the end of May.
• But things aren’t settled—some tariff pauses end in July and August, and new actions could still come.
• For businesses and consumers, that means uncertainty and potential cost swings aren’t going away any time soon.

4. Tariffs and Economic Activity

• Tariffs have had a very real, short-term impact on economic data.
• Companies rushed to import goods before tariffs hit—consumer goods and industrial supply imports spiked early this year.
• We saw the same thing with cars—vehicle sales jumped in March and April as buyers tried to beat expected price increases from auto tariffs.
• These surges make it harder to tell how strong the economy really is, because some of that demand is just being pulled forward.
• The big question is whether that means we’ll see a slowdown later this year as the “early” demand fades.

5. Inflation Expectations vs. Reality

• Tariffs haven’t pushed up inflation yet, but the general sentiment is that they will.
• Consumer surveys from both the Conference Board and the University of Michigan show inflation expectations jumping.
• But actual CPI data—both headline and core—still shows prices moving lower, not higher.
• Economists are divided: some say companies will raise prices as tariffs increase costs; others say they’ll absorb the hit to stay competitive.
• That gap between expectations and reality is critical, because if consumers expect inflation, they often act in ways that create inflation. And the Fed is watching this closely when deciding what to do with rates.

6. Interest Rates Outlook

• The Fed’s balancing act is harder now: tariffs could mean higher prices, but they also risk slowing growth.
• For now, the Fed has kept rates unchanged, waiting for more clarity.
• The futures market expects the first rate cut in September, with a gradual series of cuts through 2026 that could lower rates by around 1.25% over the next 18 months.
• But that outlook can change fast depending on inflation data and trade developments. This is why the Fed is in “wait and see” mode.

7. Earnings & Valuation Scenarios

• Earnings forecasts have been trimmed slightly but are still relatively strong, showing growth in 2025, 2026, and 2027.
• Stocks are priced for earnings growth and a valuation multiple around 22x, which is on the high side.
• If earnings beat expectations or tariffs don’t hit as hard, the S&P 500 could move higher—potentially into the 6,700+ range under optimistic scenarios.
• But if trade tensions rise again or growth softens, valuations could compress, pushing stocks lower.
• These scenarios aren’t predictions—they’re ways to think about potential market paths based on earnings and valuations.

8. Stock vs. Bond Yields

• Historically, in some periods stocks yielded more income than bonds, but today it’s the opposite.
• Bonds currently yield about 4.6%, while the S&P 500 dividend yield is only 1.6%—a gap we haven’t seen since the early 2000s.
• This means bonds now provide a more attractive income stream than stocks, which hasn’t been the case in years.
• Moves like this are good for income investors, especially those looking for cash alternatives.

9. Key Themes to Watch Next Six Months

Three big things to keep an eye on:

1. 1. Fed rate cuts: Will they resume this year, and by how much?
   2. Goods inflation: Will tariffs cause a spike in prices, and if so, is it short-term or something bigger?
   3. Corporate earnings: Will companies absorb costs to stay competitive, or pass them on to consumers and risk slowing demand?

These themes are all connected: tariffs impact inflation, inflation impacts Fed policy, and both affect growth and earnings.

10. Economic Slowdowns Don’t Last Forever

• Recessions happen, but historically they’re short compared to periods of expansion.
• Since the 1940s, expansions have lasted an average of 65 months, while recessions average about 10 months.
• Even recent downturns—like 2020’s COVID recession—were sharp but brief compared to the following recovery.
• The takeaway: long-term economic growth far outweighs temporary downturns, which is why staying invested through volatility tends to pay off.

Closing Thoughts

• Thank you everyone for joining us today as we hope this webinar has been insightful into the market themes our team is following as we work hard to manage your family’s wealth alongside ours.
• For our current clients, you can always get in touch with us by reaching out to your financial advisor by phone or email.
• For prospective clients that tuned in today, thank you for joining us. Please feel free to contact us should you have any interest in our services or if there are any questions we can answer.

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

More relevant articles by Financial Synergies:

• 2025 Outlook: 5 Insights Shaping the Markets
• Quarterly Webinar: Q2 2025 Market and Economic Themes
• Chart of the Month: Market Volatility is the Price of Admission for Investing

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