The third quarter of 2025 will be remembered for new highs, noisy headlines, and a market that continued the themes established in the prior quarters.
- Equities: U.S. stocks set multiple all-time highs before finishing just below the peak.
- Gold: Continued its climb, ending the quarter near $3,900/oz.
- U.S. Dollar: Traded in a range but remains ~10% lower year-to-date.
Our approach remains unchanged: we analyze rigorously, act with humility, and anchor our decisions to expected returns and probabilities, not macro-economic predictions.
Policy & Valuation Context
The Federal Reserve moved from “on hold” to its first rate cut of 2025, a shift that they see softer growth,but we see stubbornly high inflation, well above the Fed’s 2% long term target. Despite nearly every asset class at an all-time high, the Fed is now in a rate-cutting cycle. Meanwhile, U.S. equities are highly valued on most metrics and top-heavy: the top 10 S&P 500 holdings are ~39% of the index, a record concentration. That doesn’t mandate action by itself, but it does argue for discipline and diversification.
Gold’s Role
Gold is the standout again this year, up nearly 50%. A weaker dollar, persistent fiscal deficits, and ongoing geopolitical tension continue to support demand, alongside central banks adding to reserves. We view gold as providing portfolio insurance, diversification, absolute returns and purchasing power protection.
Dollar & International Implications
The U.S. dollar is down ~10% YTD. The U.S. dollar weakness might be taking a break for now, but these cycles have historically developed over 10-15 years. If dollar softness persists structurally, it matters:
- FX translation boosts USD returns on non-U.S. assets even if local prices are flat.
- Emerging markets typically benefit as capital costs fall and balance sheets improve.
International equities reflected some of that tailwind this quarter, with developed and emerging markets up roughly 24% and 28%, respectively.
The “S” Word
We’ve heard the questions. Client partners, industry professionals, and business owners are inquiring about the term stagflation and its implications for their wealth. Stagflation is weak/falling growth and high/rising inflation. Policy headlines (e.g., tariffs) have revived the term. Our reminder: think in regimes, not headlines. In stagflation, commodities, gold, TIPS, and diversifying alternatives tend to benefit. Equities can still work, but historically, it has been high-quality, cash-generative growth that has held up best.
Cyclical vs. Structural
The structural narrative (higher inflation risk) may coexist with a cyclical upswing (growth firming).In other words, you can see reflationary quarters (growth ↑, inflation ↑) inside a longer period of inflation concern. Policy uncertainty gauges easing, consumer expectations improving, and low jobless claims, among other positive developments, could mean that we still see more economic resilience, as the Atlanta Fed’s GDPNow sits at 3.9%.
Our Framework: The Core Four
The Core Four is a portfolio diversification tool first and a forecasting tool second. We’re not making rapid tactical shifts based on a one- to two-quarter read. We are ensuring that client partner portfolios have resilient exposure across all four economic backdrops (growth up/down, and inflation up/down), so plans don’t depend on guessing the next regime.
We’ll continue to control what we can control (design, cash flows, reserves, taxes, costs, behavior) and let time and discipline do the heavy lifting.
Q3 AT A GLANCE
Q3 delivered fresh index records, gold near $3,900/oz, and a ~10% YTD decline in the dollar. The Atlanta Fed’s GDPNow tracked around 3.9%, underscoring steady growth despite the noisy headline backdrop.
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Investment advisory services offered through Essential Partners, LLC, an SEC registered investment adviser.
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