Despite inflation remaining a concern, the Federal Reserve (Fed) cut interest rates in response to weakening jobs numbers. This allowed small-cap equity performance to lead a month that was generally positive across sectors, cap sizes and asset classes.
Small caps tend to be more reactive to short-term rate fluctuations, and the market is accounting for several rate cuts by the end of 2026, which might reflect exuberance beyond the Fed’s cautious approach and our view of two more rate cuts in 2025 and one in 2026.
The full effects of tariffs still loom. Front-loading tactics helped companies weather the uncertainty earlier in the year as they drew upon existing inventories and implemented mitigation measures, but those strategies can only delay the inevitable for so long. The long-term cost of tariffs may begin to show during Q3 earnings season.
“We’re cautious in the near term. Markets need to digest recent gains. However, our longer-term outlook is constructive,” says Raymond James Chief Investment Officer Larry Adam.
We’ll dive into the details shortly, but first: a look at the numbers year-to-date.
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*Performance reflects index values as of market close on September 30, 2025.
Jobs, manufacturing and construction took a hit
Throughout the month of August, manufacturing continued to contract with the exception of the New Orders Index. Private construction spending continued its downward trend, down 0.2% last month for a total of 4.6% this year. Job openings in July fell close to pre-pandemic levels, resulting in lower-than-expected employment overall, which followed downward revisions for another consecutive month in June.
Corporations absorbed tariff effects, but runway is dwindling
Throughout the past several months, corporations have relied on existing inventories and capitalized on tariff delays to mitigate price effects. But as those inventories dwindle, we may begin to see a sharp escalation in the effects tariffs will ultimately have. Until now, the markets have surged to record highs in spite of tariff headlines, partly because those effects weren’t reflected in actual earnings, but that could change in the coming months.
The Federal Reserve makes its new stance official
Equity markets, especially small-cap stocks, continued to climb following the Federal Open Market Committee’s decision to cut rates by 0.25%, marking the first official action of the Fed’s revised stance on the balancing of risks between fighting inflation and protecting jobs. We could see two more rate cuts of 0.25% each in October and December.
Gold hit another high, but overall mining is down
All-time record gold prices have persisted, with other precious metals like silver and platinum also seeing record values. However, prices for a broad range of industrial metals – including iron, nickel, lithium and silicon – are flat or down this year, amid sluggish demand from China. Mergers and acquisitions have emerged as one of the few pathways for mining companies to boost earnings.
International outlook
China’s economic relations with the US took a step forward after Trump’s call with President Xi Jinping set the stage for three in-person meetings in the coming months. US companies are set to control 80% of TikTok moving forward while its parent company ByteDance retains less than 20%, marking the removal of a major barrier toward broader US-China trade discussions.
China’s domestic efforts to scale up tech independence have shown an increased urgency to insulate the industry. Consequently, the Chinese government has ordered local companies to stop purchasing chips from Nvidia.
Multiple court cases pending with major economic implications
Last month, the US Court of Appeals delivered a landmark ruling against President Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA), limiting his ability to unilaterally levy country-level tariffs. The Supreme Court is set to hear the case on November 5, with a ruling expected early next year.
A second case involving the president’s firing of Fed Governor Lisa Cook, citing a threat to the independence of the Fed from overreach by the executive branch, will likely be heard by the Supreme Court as well.
The bottom line
Markets often sway with the headlines, especially when political noise dominates the news cycle. We’ll continue to stay alert to tariff and inflation developments, which are key drivers of rate volatility.
- By the end of 2025, we expect a slowing of economic growth in the United States, but not a recession.
- We expect U.S. equities to be volatile for much of 2025. Returns should be positive, but more in line with historical averages, as well.
- We believe that interest rates will continue to fall in 2025.
- Cash is king and Bonds are back. We would look to add traditional fixed income, particularly money markets & short-dated bonds, for safety and stability for 2025.
- We recommend investors continue to consider an overweight of alternative investments, including both private equity and debt.
- Gold has reached our current target of $3,300 per ounce, topping out at $3,500.05 on April 22, 2025. We are currently holding our target at $3,300, and expect gold to consolidate between $3,150-$3,500 per ounce for the time being.
- Cryptocurrencies soared in 2024 and have had a volatile start to 2025. We expect continued volatility, but further appreciation in 2025.
- Depending on your timeframe, current investment strategies should be based on what’s happening “Now,” “Next,” and “Later.
- Don’t panic. Be patient. Look to profit.
As always, we are dedicated to helping you achieve your financial goals and appreciate the continued trust you place in us. If you have any questions about this report or need assistance with anything, please feel free to contact us. We look forward to connecting with you soon!
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