Equity markets extended their gains in the third quarter, propelling major US stocks indexes to new record highs along the way. Domestic stocks continued their strong run that began in the second quarter after their quick recovery from a volatile April precipitated by President Trump’s trade tariffs.
Improving international trade negotiations and the Federal Reserve’s 0.25% interest rate cut in September helped the S&P 500 and the technology heavy Nasdaq indexes soar to new records. The interest rate cut was the first rate cut of 2025, and the first cut since December of 2024.
For the quarter, the S&P 500 index gained 8.12%, but the Nasdaq composite index gained 11.41% as continued exuberance around artificial intelligence drove NVIDIA and similar stocks to new highs.
NVIDIA became the first public company to reach a market capitalization of $4 trillion in the quarter, making it account for nearly 8% of the S&P 500 index. While tech stocks continued their dominant advance from earlier this year, small cap stocks surged in the third quarter as well with the Russell 2000 index up 12.39%.
International equities continued their impressive performance for the year in the third quarter as well, although at a slower pace. Developed international markets, as measured by the MSCI World ex USA IMI Index, gained 5.60% in the third quarter.
Emerging markets, tracked by the MSCI Emerging Markets IMI Index, gained 9.88% in the quarter. While US equity indexes made up ground on international indexes in the third quarter, they still trail year to date.
Finally, bond markets saw significant gains in the third quarter. The Bloomberg US Aggregate Bond index rose 2.03%, while US Treasury prices were 1.5% higher, sending the yield on the benchmark 10-year Treasury down to 4.14%.
Despite the strong market gains across many sectors, there was a bit of troubling news. In August, the US core consumer price index saw a 3.1% rise in prices from a year ago. Concerns about downside risks to employment number also loom in the fourth quarter, especially considering the US Government shutdown at the beginning of October.
Sources: Dimensional Fund Advisors LP, S&P Dow Jones Indices LLC, MSCI, Frank Russell Company