Edward Jones has issued the Quarter Review.
Markets react to policy clarity with all-time highs Entering the second half of 2025, tax and tariff uncertainties clouded the outlook for inflation, economic growth and monetary policy. But as the third quarter progressed, clarity emerged on several fronts:
• Fiscal policy: The One Big Beautiful Bill Act passed in early July, offering a modest fiscal boost to the economic outlook.
• Trade policy: Trade tensions eased as the U.S. reached agreements with some major partners, avoiding worst-case scenarios and helping stabilize global trade.
• Monetary policy: The Fed reaffirmed its support of labor markets, cutting the federal funds rate for the first time this year, by 25 basis points.
While uncertainty remains, these developments helped stock markets extend their rebound from April’s lows. Multiple regional indexes achieved all-time highs, with economically sensitive stocks leading the way. U.S. small-cap stocks claimed the top spot, reaching a new high for the first time in nearly four years. While the government shutdown created a new potential source
of market angst headed into the fourth quarter, we don’t expect lasting impacts on the economy, and any potential market volatility is likely to be temporary as markets refocus on more fundamental drivers of the outlook. Tech trends and tailwinds turbocharge markets The growth prospects of artificial intelligence (AI) continued to boost markets, fueled by strategic
investments and partnerships, research breakthroughs and robust earnings. As a result, tech-heavy asset classes, such as U.S. large-cap stocks and emerging-market equity, were among the quarter’s leaders. U.S. large-cap technology and communication services sectors — two with significant AI exposure — delivered a strong quarter and staggering three-year annualized returns around 40%.
Bonds hold their own amid diverging interest rates In addition to the rate cut, the Fed forecast more cuts as possible but uncertain. Markets, however, appeared more confident in further easing, which helped send Treasury yields lower and bond returns higher. Conversely, interest rates rose across many international developed markets, driven in part by political and fiscal uncertainties. Consequently, international bonds lagged all other asset classes, though they still posted positive returns over the quarter.
