Q3 2025 in Review and Q4 Market Outlook

While there was no shortage of concerns for investors in the third quarter of 2025, stocks powered higher on the back of the artificial intelligence boom and a long-awaited Federal Reserve interest rate cut

Now, as the fourth quarter gets underway, what’s the outlook for the stock and bond markets? What sectors are most attractive? What should investors do from here? We’ve gathered insights and perspectives from analysts and specialists about market performance, individual stocks, sectors, and mutual funds.

Q3 2025 Market Performance and the Economy

Stocks went into the quarter in the midst of a rebound from April’s sharp tariff-driven selloff. With President Donald Trump having retreated from imposing most of the harshest levies he had threatened, investors were heartened by solid earnings and (at the start of the quarter) the appearance of a still-healthy economy. At the same time, the AI boom showed no signs of slowing, with companies announcing massive investments in AI infrastructure, fueling a strong rise in technology stocks.

However, the economic picture turned cloudy over the course of the quarter. Downward revisions to job growth and weak new readings on employment showed the economy was not as solid as investors believed. Meanwhile, inflation readings crept higher as Trump’s tariffs began to be passed on to consumers. And in the background, Trump’s attacks on the Fed’s independence worried a growing number of investors, fueling a downtrend in the value of the US dollar. For stocks, the prospect of a softening jobs market was seen as a positive, since it pushed the Fed to cut rates.

Here is our look at the big market and economic trends from the third quarter of 2025 and Morningstar’s market outlook for the fourth quarter and beyond.

Q3 2025 Stock Market Performance

For the stock market it was largely a straight line higher in the third quarter. For much of the quarter small-cap stocks finally had their time in the sun, outperforming large cap stocks amid hopes for a Fed rate cut. However, the dominant trend was the renewed leadership of tech stocks.

Here, we take a deeper dive into third quarter stock market performance among sectors and individual stocks.

Q4 Stock Sector Outlooks and Top Sector Stock Picks

Each quarter, Morningstar’s equity analysts take a deep dive across the stock sectors, highlighting key trends and offering their top picks.

Q3 2025 Mutual Fund Performance and Top Picks

For mutual fund investors, the third quarter was another good one, with growth funds again taking the lead. One key difference: Small-cap stock funds finally offered investors returns that were competitive with the broader market. On the bond side of the equation, strategies focused on credit investments outperformed interest-rate-sensitive approaches.