In the third quarter of 2025, markets continued to march higher despite mixed economic data and persistent geopolitical uncertainty. The S&P 500 reached new all-time highs during the quarter fueled by the ongoing buildout of AI infrastructure and its promises of future productivity and profitability. The enactment of the One Big Beautiful Bill (OBBB) on July 4th, 2025, also contributed to the summer rally by reducing corporate taxes and keeping personal income tax rates low, thus forming the economic framework of President Trump’s second term.
The Federal Reserve ended a nine-month pause in its easing campaign by lowering the Fed Funds rate by .25% in September and hinting that a few more cuts are to come. While inflation remains stubbornly higher than the Fed’s two percent target, the Committee chose to focus on what appears to be a softening labor market. The Fed’s cut and dovish commentary eased investor fears of a renewed inflation spike, especially in light of the uncertainty around US tariff policy.
For the quarter, US small cap stocks (Russell 2000 Index) led the pack closing the quarter up 12.2%. US large cap stocks (S&P 500) gained 8.12% marking the third consecutive quarter where companies achieved double-digit earnings growth. Developed international stocks (MSCI EAFE Index) had a respectable showing up 4.77%, and emerging markets (MSCI Emerging Markets Index) were up double digits at 10.64%. REITS (Dow Jones US Real Estate Index) remained in positive territory, up 3.2%. Fixed income (Bloomberg U.S. Aggregate Bond Index) rebounded as rates declined in anticipation the Fed’s easing stance closing the quarter up 2.03%. During the quarter, significant flows into fixed-income investments contributed to the rise in bond prices and compressed yields.
As we enter the fourth quarter of 2025, we find ourselves in the throes of another government shutdown, one that may prove to be one of the longest on record. Republicans and Democrats are at odds over how to address the expiration of health care subsidies added during the Covid-19 pandemic and extended when the Democrats controlled Congress and the White House. House Republicans passed a Continuing Resolution (CR), a so called “clean bill” which is solely intended to extend the previous year’s funding levels. Republicans claim they are open to working on further health care reform, but only after the passage of the CR to keep the government open. Senate Democrats claim the bill is not “clean” insisting it must include an extension of the premium tax credits, which are set to expire at the end of this year. The Senate failed to pass the CR, so the government officially shut down on October 1st, 2025.
So far, markets have had a muted reaction to the shutdown expressing optimism it will resolve with little impact on the economy or the markets. Historically, this has proven to be the case. Since 1976, there have been 22 shutdowns, with the S&P 500 averaging a small gain during these episodes and posting strong gains in the 12 months following the end of the shutdowns. However, to the extent the closure persists, investors can expect increased volatility due to the uncertainty of outcomes and the suspension of timely government data around employment, trade, and inflation causing markets to “fly blind” in assessing economic conditions.
The State of Inflation
The Federal Reserve’s dual mandate of stable prices and maximum employment are with good reason. Both are critical for a thriving economy and to allow the average family to function without fear of financial instability. From a financial planning point of view, being able to prudently model and monitor future inflation is essential in helping clients realize their long-term financial aspirations.
It is safe to say the Fed has, for the most part, normalized the rate of inflation from the Covid-induced spike. Yet, consumers are still dealing with elevated prices from this spike, especially for those of modest means.
Our current economic outlook has been described as “stagflation light” with economic growth losing steam, and inflation remaining above target rates. The Fed continues to measure trends in both employment and inflation seeking equilibrium, yet this may prove to be more difficult than they would like. Actions and comments from the Fed imply they are inclined to continue to ease monetary policy with the only dissent in the last Fed meeting being its newest appointee, Fed Governor Miran, who suggested an even more dovish .50% cut!
There are several challenges the Fed faces with respect to the direction of inflation including possible labor shortages from immigration policy, and the President’s tariff and tax policy agenda.
Immigration Policy: Immigration restrictions and deportations could result in a tighter labor supply, perhaps resulting in higher wages and increasing costs for business. This would particularly affect sectors like agriculture, construction, and services who rely more heavily on migrant workers.
Tariffs: It remains to be seen what the final version of the Trump administration’s tariff policy will be, but as it stands today, many economists and businesses believe tariffs are here to stay with a good portion of the costs being passed on to consumers. For instance, The National Restaurant Association estimates that to maintain a modest 5% profit margin, the average restaurant would need to raise prices by over 30%!
Firms like Goldman Sachs have also indicated that tariffs will cause inflationary pressure by increasing the cost of a whole host of imported goods. Further, tariffs on raw materials, such as copper and steel, will make finished goods produced in the US more expensive.
Tax Policy: While the extension of low tax rates and other provisions of the OBBB will provide stimulus to the economy, some argue that, over the long run, deficit-financed tax relief could contribute to higher debt and deficits, resulting in higher interest rates and inflation. Perhaps some of these inflationary pressures will not present themselves, but the Trump administration would be wise to be prudently responsive to these dynamics as they further implement their economic platform.
Counter Inflationary Trends
While the issues discussed above may provide inflationary headwinds, there are plenty of counter inflationary points to consider. The evolution and implementation of AI could profoundly change the path of inflation over time. Ideally, AI will make workers more productive, driving increased output which will allow for increased savings, investment, and capital formation in a virtuous cycle.
There are other counter inflationary points to consider as well. Automation and robot technology may mitigate inflationary issues around labor shortage caused by immigration policy and the technological obsolescence of lower skilled workers. It is not a foregone conclusion that tariff policy will result in persistent inflation, but rather it may cause temporary spikes while supply chains are realigning, and consumers adapt.
New Enhancements at WDG
We strive to make constant improvements to our offering and the technology behind it. We are pleased to inform you that we have just rolled out some enhancements to our client dashboard with updates to include all the provisions of the One Big Beautiful Bill tax law. As we head into the new year, we will be reaching out to schedule meetings to introduce the new features and discuss any planning opportunities associated with the new tax law.
Final Thoughts
At Wealth Dimensions Group, we emphasize patience, as our long-term investment strategy is designed to allow investors to manage current economic conditions while seeking to realize long-term expected market returns. Issues such as the government shutdown or uncertainty around tariffs can create volatility, but markets have had a way of ultimately looking past these events. The key is not to react impulsively, but to make well-informed decisions that align with your investment objectives and risk tolerance.
As we head into the fourth quarter, we are focused on positioning our clients’ portfolios to mitigate volatility and take advantage of swings in various asset classes through rebalancing. While we do so periodically throughout the year, the fourth quarter gives us another chance to review positions in our taxable accounts for tax loss harvesting opportunities where we capture tax losses in certain securities, reposition the proceeds to maintain asset class exposure while utilizing these losses to offset capital gains both now and in the future.
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Quarterly Commentary: Third Quarter 2025
In the third quarter of 2025, markets continued to march higher despite mixed economic data and persistent geopolitical uncertainty. The S&P 500 reached new all-time highs during the quarter fueled by the ongoing buildout of AI infrastructure and its promises of future productivity and profitability. The enactment of the One Big Beautiful Bill (OBBB) on July 4th, 2025, also contributed to the summer rally by reducing corporate taxes and keeping personal income tax rates low, thus forming the economic framework of President Trump’s second term.
The Federal Reserve ended a nine-month pause in its easing campaign by lowering the Fed Funds rate by .25% in September and hinting that a few more cuts are to come. While inflation remains stubbornly higher than the Fed’s two percent target, the Committee chose to focus on what appears to be a softening labor market. The Fed’s cut and dovish commentary eased investor fears of a renewed inflation spike, especially in light of the uncertainty around US tariff policy.
For the quarter, US small cap stocks (Russell 2000 Index) led the pack closing the quarter up 12.2%. US large cap stocks (S&P 500) gained 8.12% marking the third consecutive quarter where companies achieved double-digit earnings growth. Developed international stocks (MSCI EAFE Index) had a respectable showing up 4.77%, and emerging markets (MSCI Emerging Markets Index) were up double digits at 10.64%. REITS (Dow Jones US Real Estate Index) remained in positive territory, up 3.2%. Fixed income (Bloomberg U.S. Aggregate Bond Index) rebounded as rates declined in anticipation the Fed’s easing stance closing the quarter up 2.03%. During the quarter, significant flows into fixed-income investments contributed to the rise in bond prices and compressed yields.
As we enter the fourth quarter of 2025, we find ourselves in the throes of another government shutdown, one that may prove to be one of the longest on record. Republicans and Democrats are at odds over how to address the expiration of health care subsidies added during the Covid-19 pandemic and extended when the Democrats controlled Congress and the White House. House Republicans passed a Continuing Resolution (CR), a so called “clean bill” which is solely intended to extend the previous year’s funding levels. Republicans claim they are open to working on further health care reform, but only after the passage of the CR to keep the government open. Senate Democrats claim the bill is not “clean” insisting it must include an extension of the premium tax credits, which are set to expire at the end of this year. The Senate failed to pass the CR, so the government officially shut down on October 1st, 2025.
So far, markets have had a muted reaction to the shutdown expressing optimism it will resolve with little impact on the economy or the markets. Historically, this has proven to be the case. Since 1976, there have been 22 shutdowns, with the S&P 500 averaging a small gain during these episodes and posting strong gains in the 12 months following the end of the shutdowns. However, to the extent the closure persists, investors can expect increased volatility due to the uncertainty of outcomes and the suspension of timely government data around employment, trade, and inflation causing markets to “fly blind” in assessing economic conditions.
The State of Inflation
The Federal Reserve’s dual mandate of stable prices and maximum employment are with good reason. Both are critical for a thriving economy and to allow the average family to function without fear of financial instability. From a financial planning point of view, being able to prudently model and monitor future inflation is essential in helping clients realize their long-term financial aspirations.
It is safe to say the Fed has, for the most part, normalized the rate of inflation from the Covid-induced spike. Yet, consumers are still dealing with elevated prices from this spike, especially for those of modest means.
Our current economic outlook has been described as “stagflation light” with economic growth losing steam, and inflation remaining above target rates. The Fed continues to measure trends in both employment and inflation seeking equilibrium, yet this may prove to be more difficult than they would like. Actions and comments from the Fed imply they are inclined to continue to ease monetary policy with the only dissent in the last Fed meeting being its newest appointee, Fed Governor Miran, who suggested an even more dovish .50% cut!
There are several challenges the Fed faces with respect to the direction of inflation including possible labor shortages from immigration policy, and the President’s tariff and tax policy agenda.
Immigration Policy: Immigration restrictions and deportations could result in a tighter labor supply, perhaps resulting in higher wages and increasing costs for business. This would particularly affect sectors like agriculture, construction, and services who rely more heavily on migrant workers.
Tariffs: It remains to be seen what the final version of the Trump administration’s tariff policy will be, but as it stands today, many economists and businesses believe tariffs are here to stay with a good portion of the costs being passed on to consumers. For instance, The National Restaurant Association estimates that to maintain a modest 5% profit margin, the average restaurant would need to raise prices by over 30%!
Firms like Goldman Sachs have also indicated that tariffs will cause inflationary pressure by increasing the cost of a whole host of imported goods. Further, tariffs on raw materials, such as copper and steel, will make finished goods produced in the US more expensive.
Tax Policy: While the extension of low tax rates and other provisions of the OBBB will provide stimulus to the economy, some argue that, over the long run, deficit-financed tax relief could contribute to higher debt and deficits, resulting in higher interest rates and inflation. Perhaps some of these inflationary pressures will not present themselves, but the Trump administration would be wise to be prudently responsive to these dynamics as they further implement their economic platform.
Counter Inflationary Trends
While the issues discussed above may provide inflationary headwinds, there are plenty of counter inflationary points to consider. The evolution and implementation of AI could profoundly change the path of inflation over time. Ideally, AI will make workers more productive, driving increased output which will allow for increased savings, investment, and capital formation in a virtuous cycle.
There are other counter inflationary points to consider as well. Automation and robot technology may mitigate inflationary issues around labor shortage caused by immigration policy and the technological obsolescence of lower skilled workers. It is not a foregone conclusion that tariff policy will result in persistent inflation, but rather it may cause temporary spikes while supply chains are realigning, and consumers adapt.
New Enhancements at WDG
We strive to make constant improvements to our offering and the technology behind it. We are pleased to inform you that we have just rolled out some enhancements to our client dashboard with updates to include all the provisions of the One Big Beautiful Bill tax law. As we head into the new year, we will be reaching out to schedule meetings to introduce the new features and discuss any planning opportunities associated with the new tax law.
Final Thoughts
At Wealth Dimensions Group, we emphasize patience, as our long-term investment strategy is designed to allow investors to manage current economic conditions while seeking to realize long-term expected market returns. Issues such as the government shutdown or uncertainty around tariffs can create volatility, but markets have had a way of ultimately looking past these events. The key is not to react impulsively, but to make well-informed decisions that align with your investment objectives and risk tolerance.
As we head into the fourth quarter, we are focused on positioning our clients’ portfolios to mitigate volatility and take advantage of swings in various asset classes through rebalancing. While we do so periodically throughout the year, the fourth quarter gives us another chance to review positions in our taxable accounts for tax loss harvesting opportunities where we capture tax losses in certain securities, reposition the proceeds to maintain asset class exposure while utilizing these losses to offset capital gains both now and in the future.
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.