As the third quarter draws to a close, headlines once again center on a government shutdown in Washington. It’s a familiar situation and one that history suggests rarely leaves a lasting mark on financial markets. Since 1981, there have been 11 shutdowns; only four lasted more than five days, and in three of those instances, U.S. markets finished higher. While the disruption is challenging for federal employees, past experience indicates that shutdowns tend to have limited long-term effects for investors.
Meanwhile, the broader market picture remains encouraging. The third quarter brought strong returns across major asset classes, a continued recalibration in global market leadership, and the first step toward a new interest rate environment.
Markets Rebound Across the Board
The quarter delivered broadly positive results. U.S. stocks posted solid gains: the Russell 3000 rose 8.2%, and small-cap companies, as measured by the Russell 2000, advanced 12.4%. International developed markets added 5.3%, and emerging markets climbed 10.6%, building on double-digit growth from the prior quarter.
Bond investors also benefited. The Bloomberg U.S. Aggregate Bond Index gained 2% for the quarter and 6.1% year-to-date, supported by the Federal Reserve’s first rate cut in nine months. The Fed reduced its target range to 4.0%–4.25%, suggesting the beginning of a gradual easing cycle.
Beyond the “Magnificent 7”
After several years of U.S. market leadership driven largely by a handful of large technology companies, 2025 has shown the advantages of diversification. While these “Magnificent 7” firms continue to represent a meaningful portion of returns, their valuations remain elevated, reminding investors of the importance of balance across sectors and styles.
At the same time, smaller U.S. companies, international markets, and other asset classes have shown renewed strength. International equities, in particular, have benefited from a weaker U.S. dollar, rebounding corporate earnings, and more attractive valuations. After more than a decade of U.S. outperformance, global markets appear to be entering a new phase of opportunity.
A Turning Point for Bonds
Fixed income also continues to play its stabilizing role. Core U.S. bonds have not only generated positive returns this year but have once again served as a valuable counterbalance to equity volatility. Historically, 10-year Treasury bonds have tended to move in the opposite direction of stocks, a relationship that helps smooth returns in diversified portfolios. With the Fed now beginning to lower rates, bonds are positioned to offer both income and stability.
Economic Resilience with Signs of Caution
The U.S. economy continues to show resilience. Consumer spending, especially on services, has remained steady, though recent data indicate some slowing, and business confidence has softened, with manufacturing and leading economic indicators signaling a more cautious tone.
Inflation remains above the Fed’s long-term target, with the shifts in trade policy and tariffs adding to corporate uncertainty, even as overall growth has held firm. Still, the broader economy appears to be adapting to these changing conditions. While growth may moderate, the data suggest an ongoing balance between steady demand, easing inflation, and gradual policy adjustment.
Perspective for Investors
Markets this year have reflected an ongoing period of transition, from monetary policy shifts to new patterns of global market leadership. Through these changes, diversification and a long-term perspective have remained essential.
Periods of adjustment often bring both uncertainty and opportunity. At Stirling Capital, we continue to emphasize disciplined, globally diversified portfolios designed to help clients weather change and capture growth over time.
If you would like to review your allocation or discuss how recent market developments may affect your financial plan, please reach out to our team.
*The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.
