Third Quarter 2025 Update

October 1, 2025

Key Points

• From a macroeconomic perspective, a soft landing remains a plausible outcome. Moderating inflation, improving supply-side conditions, and a central bank that is now moving carefully all create room for growth to continue at a modest pace.
• At its September 17, 2025 meeting, the FOMC cut the target range for the federal funds rate by 25 basis points to 4.00%–4.25%, marking the Committee’s first policy easing after a series of pauses earlier in the year.
• Stock prices were generally higher for the quarter, with a majority of economic sectors delivering positive returns. Stock investors continue to assess and digest a complex economic outlook and market environment marked by heightened political rhetoric, inflation still at levels higher than desired, and percolating geopolitical tensions.

3cd QUARTER 2025 MARKET COMMENTARY

Below, we’ve highlighted broad market returns for the current quarter and year-to-date time periods:

Source: Refinitiv

THE GLOBAL ECONOMY

The U.S. economy showed renewed resilience in the third quarter of 2025 after a weak start to the year: the Bureau of Economic Analysis’ third estimate reports that real gross domestic product (GDP) increased at an annual rate of 3.8% in Q2 2025. Economists continue to debate the outlook: policy swings and tariff uncertainty remain downside risks that some worry could raise recession odds, even as other indicators show stronger activity. The labor market has cooled relative to the spring — total nonfarm payrolls rose only 22,000 in August 2025 and the unemployment rate edged to 4.3% in August. The Federal Open Market Committee (FOMC) shifted policy in September, lowering the target range for the federal funds rate by 25 basis points to 4.00%–4.25% on September 17, 2025. Inflation remains above the Fed’s 2% goal but shows signs of moderation: the Bureau of Economic Analysis (BEA) Personal Consumption Expenditures (PCE) Price Index rose 2.7% year-over-year in August 2025. In the Fed’s September Summary of Economic Projections, the median projection for PCE inflation in 2025 remains elevated, around 3.0%, reflecting persistent price pressures.

EQUITIES

Stock prices were generally higher for the quarter, with a majority of economic sectors delivering positive returns. Stock investors continue to assess and digest a complex economic outlook and market environment marked by heightened political rhetoric, inflation still at levels higher than desired, and percolating geopolitical tensions. While inflation remains stubbornly above the Federal Reserve’s target, keeping policymakers and investors in a cautious stance. When the quarter ended, the S&P 500 Index was higher by 8.1%.  International stocks generated positive results during the quarter and overall performed in line with US equities, with the MSCI EAFE Index of developed markets stocks higher by 4.8%, and the MSCI Emerging Markets Index advancing by 10.6%.

FIXED INCOME

Fixed income securities were on balance slightly higher (and yields lower) during the quarter, as bond markets digested a complex mix of economic signals after a September Fed easing and softer inflation.   At its September 17, 2025 meeting, the FOMC cut the target range for the federal funds rate by 25 basis points to 4.00%–4.25%, marking the Committee’s first policy easing after a series of pauses earlier in the year. In the accompanying Summary of Economic Projections, the Fed’s median projection for PCE inflation in 2025 is 3.0% (with core PCE near 3.1%), reflecting persistent but moderating price pressures; the September 2025 Summary of Economic Projections (SEP’s) median path for the federal funds rate at the end of 2025 was revised down to 3.6%, implying additional cuts are expected later this year.  

SUMMARY

Rather than a sharp contraction, recent data describe a tempering of activity: payroll gains have moderated, but layoffs remain low, initial unemployment claims sit well below levels associated with recessions, and aggregate measures of output and corporate income continue to show resilience. Those features together suggest firms are managing demand through discipline—hiring more cautiously and holding on to experienced workers—rather than signaling an imminent, broad-based downturn.

Corporate profits and cash balances remain at levels that allow companies to fund investment, service debt and avoid precipitous cuts to payrolls. Where firms are cautious, they have often prioritized productivity and efficiency—reallocating labor, extending hours for existing staff, or delaying nonessential hiring—rather than large layoffs. That tendency toward labor hoarding preserves organizational know-how and makes a smoother reacceleration of activity more likely if demand strengthens.

From a macroeconomic perspective, a soft landing remains a plausible outcome. Moderating inflation, improving supply-side conditions, and a central bank that is now moving carefully all create room for growth to continue at a modest pace. Policy makers and corporate leaders therefore have the luxury of time to calibrate responses: measured monetary easing, targeted fiscal measures, or corporate investments that emphasize productivity can all support activity without creating the conditions for an overheating rebound.

Information provided is for informational purposes only and should not be construed as investment advice. The views expressed are current only as of the publication date, are based on information that St. Clair Advisors believes to be accurate, and subject to change without notice. All investment decisions must be evaluated as to whether they are consistent with your investment objectives, risk tolerance and financial situation. St. Clair disclaims any liability for any direct or incidental loss incurred by applying any of the information in this publication. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

St. Clair Advisors
5875 Landerbrook Drive, Suite 240
Mayfield Heights, OH 44124
TEL: 216.925.5670 | FAX: 440.646.1838
www.saintclairllc.com