In Q3, large and small caps hit new highs, with cyclical sectors outperforming defensive ones. Gold is on track for its best year since 1979. S&P 500 earnings are expected to grow by 7.9% YoY in Q3. Both stocks and bonds have historically gained during government shutdowns in the last 30 years.

Despite various market worries, the stock market has rebounded to record highs with cyclical leadership. September saw broad gains, with the Russell 2000 reaching new highs for the first time since 2021. Large-cap sectors, led by cyclicals, have all seen positive performance YTD in 2025.

Small-cap sectors have shown strong recovery, driven by lower rates. Resilient economic data, corporate earnings, AI investment, and rate cuts have fueled market momentum. Despite some weak economic measures, indicators of recession are currently on an uptrend.

Inflation is rising for core goods due to tariffs, while service inflation has slowed. The market projects inflation at 2.31% in the next five years. S&P 500 earnings grew by 12.7% in Q2, exceeding expectations. For Q3, estimated earnings growth is 7.9% YoY, with sectors like IT and Financials leading the way.

The US Dollar stabilized in Q3 after a weak first half, driving precious metals to surge. Gold and silver are having their best performances in years. Historical data shows that markets have weathered government shutdowns well, with stocks rising and bonds seeing safe-haven demand.

Looking ahead, market participation is strong, with industries like semiconductors leading the way. Cyclicals continue to show strength, with the Equal Weight Discretionary Index outperforming defensive sectors. Banks are also performing well, with the BKX Index hitting new highs.

Read more at Nasdaq: September, Third Quarter 2025 Review and Outlook