After a tumultuous start to 2025 with April’s tariff shock, the third quarter delivered something few expected: one of the strongest market rallies in recent memory.
The S&P 500 closed Q3 above 6,600 for the first time in history, hitting 6,615 on September 15th. For the quarter, stocks gained over 5%, bringing the year-to-date return to double digits. The Dow Jones breached 46,000, while even small-cap stocks participated in the rally.
The big catalyst? The Federal Reserve finally cut rates in September, lowering the target range by 0.25% to 4.00%-4.25%. After holding rates steady for nine months, the Fed signaled that concerns about the labor market now outweigh inflation worries. With Chair Powell characterizing the move as “risk management” in a softening economy, markets cheered.
Corporate earnings continued to surprise to the upside. An impressive 81% of companies beat earnings estimates in Q2, one of the highest percentages in recent years. The AI boom and strong consumer spending fueled much of this strength, though market leadership finally broadened beyond just tech giants.
On the fixed income side, bonds posted modest gains as rates declined. The Bloomberg Aggregate Bond Index was up slightly as investors positioned for continued Fed easing.
Here’s what caught my attention: a recent Nationwide study I was cited in found that 48% of workers shifted their retirement savings to more conservative investments during this year’s volatility, potentially locking in losses or sacrificing long-term growth for short-term comfort. This behavior gap is exactly what hurts returns over time.
The lesson? Markets reward those who stay disciplined during volatility. From April’s lows to September’s highs, investors who stuck with their plans captured one of the fastest recoveries in market history. Those who panicked missed it.
As we head into Q4, remember: your biggest investment risk isn’t market volatility, it’s how you react to it.
Want to discuss how current markets affect your retirement plan? Schedule a conversation with our team →
Eric Ludwig, Ph.D., CFP®, RICP® is CEO of Stockbridge Private Wealth Management and Director of the Center for Retirement Income at The American College of Financial Services. His research has been featured in Barron’s, Forbes, Wall Street Journal, and he was recently cited in Nationwide’s research on investor behavior.