Trust Investment Management
The S&P 500 dominated third-quarter headlines, fueled by robust corporate earnings and resilient economic indicators, as the index surged to new highs and sustained its bullish momentum. However, the rally extended beyond large-cap equities, with strength spreading across asset classes. U.S. small-cap stocks and fixed income markets gained ground, supported by a more dovish Federal Reserve that initiated rate cuts toward the end of the quarter. At the same time, international investments maintained their upward trajectory, outperforming U.S. assets year-to-date—driven largely by continued weakness in the U.S. dollar relative to other major currencies.
At the start of the quarter, the Federal Reserve held interest rates steady amid persistent inflation concerns. However, Chair Jerome Powell later described a “challenging situation,” with inflation risks tilted upward and employment risks downward. He emphasized that this evolving balance “may warrant adjusting our policy stance.” Following his remarks, market expectations for a September rate cut surged—and the Fed ultimately delivered, lowering rates by 25 basis points toward the end of the quarter.
The growing likelihood that the Federal Reserve will continue cutting interest rates has contributed to the dollar’s weakness this year, eroding its yield advantage. As the dollar depreciates relative to foreign currencies, international assets become more attractive on a total return basis, factoring in both asset performance and foreign currency appreciation.
The Organization for Economic Cooperation and Development (OECD) released its interim economic outlook in late September, noting that global growth in the first half of 2025 was more resilient than expected—including in the United States. This strength came despite U.S. tariff levels rising to an estimated effective rate of 19.5% by the end of August, the highest since the mid-1930s. The OECD cautioned that further tariff increases, heightened concerns around fiscal sustainability, and renewed inflationary pressures could pose downside risks. On the upside, however, a reduction in trade barriers or faster-than-expected progress in artificial intelligence could help support stronger global growth.
