Q3 2025 Review:
Resilience Tested.
A comprehensive review of third quarter performance, key market drivers, and defensive positioning adjustments.
The third quarter of 2025 was defined by the "Higher for Longer" narrative finally sinking in. Equities faced headwinds from rising rate expectations (10Y Treasury touched 4.6%), yet credit markets remained resilient. Our portfolios navigated this environment with defensive positioning and selective opportunities in energy and healthcare.
Asset Class Performance (Q3)
+4.2%
US Equities
+1.8%
Intl Developed
-2.1%
Emerging Mkts
-0.5%
Core Bonds
Macro Drivers: The Inflation "Last Mile"
While headline inflation has cooled to 2.8%, core services inflation remains sticky. This has forced the Fed to signal that rate cuts are off the table until mid-2026. This environment favors Quality over Growth:
- Labor Market: Remains tight, supporting consumption but keeping wage pressure high.
- Corporate Earnings: S&P 500 earnings grew 5% YoY, driven almost entirely by margin expansion in Tech and Energy.
- Housing: Activity has frozen due to mortgage rates, but prices haven't collapsed due to low inventory.
Fixed Income: The Return of Yield
For the first time in 15 years, fixed income offers a genuine alternative to equities. We are overweight Short Duration Investment Grade credit, yielding 5.5% with minimal duration risk. We remain underweight long-duration treasuries as term premiums re-price.
Q4 Positioning
Adding Exposure
- - Healthcare Providers (Defensive)
- - Japanese Equities (Governance Reform)
- - Infrastructure (Inflation Protection)
Reducing Exposure
- - Consumer Discretionary (Spending Slowdown)
- - European Industrials (Energy Costs)
- - Long-Duration Sovereign Debt