Table of Contents
- Market Rally Defies Reality
- Q3 Returns by the Numbers
- AI, Gold, and Crypto: The Trifecta of Gains
- Why Index Funds Still Win
- What Could Go Wrong?
- Smart Steps for Investors Today
- Sources
Market Rally Defies Reality
While headlines scream political gridlock, government shutdowns, and civil unrest, Wall Street is throwing a party. The third quarter of 2025 delivered stunning returns across nearly every major asset class—from U.S. equities to international stocks, bonds, and even gold. It’s a paradox that has left many scratching their heads: how can markets thrive when the news is so bleak?
Yet here we are. The S&P 500 hit new highs in early October. Tech giants riding the AI wave—like Nvidia, Microsoft, and Meta—are fueling a self-fulfilling rally. As Mark Hackett of Nationwide put it: “Earnings are strong and getting stronger, investors are shrugging off a lack of data, and even a government shutdown can’t shake their confidence.”
Q3 Returns by the Numbers
According to Morningstar’s analysis for The New York Times, here’s how average investors fared through September 2025:
| Asset Category | Q3 Return | 12-Month Return |
|---|---|---|
| U.S. Domestic Stock Funds (avg.) | 6.2% | 11.9% |
| International Stock Funds (avg.) | 6.6% | 16.8% |
| S&P 500 Index | 8.1% | 17.6% |
| Russell 2000 (Small Caps) | 12.4% | 10.8% |
| Taxable Bond Funds (avg.) | 2.2% | 5.0% |
| Municipal Bond Funds (avg.) | 2.7% | 1.2% |
AI, Gold, and Crypto: The Trifecta of Gains
Three forces are turbocharging portfolios in 2025:
- Artificial Intelligence Infrastructure: Hundreds of billions are pouring into AI data centers, chips, and cloud platforms. Companies like Nvidia and Taiwan Semiconductor are reaping the rewards.
- Precious Metals: Gold prices are soaring amid global uncertainty. Precious metal stock funds jumped 41% in Q3 and a jaw-dropping 92.6% over 12 months.
- Cryptocurrency: Bitcoin-linked ETFs like the iShares Bitcoin Trust gained 80% year-over-year, despite a modest 6.2% in Q3.
Notably, Robinhood’s inclusion in the S&P 500—after its stock surged 284% year-to-date—symbolizes the return of retail-driven momentum.
Why Index Funds Still Win
Despite the hype around hot sectors, low-cost index funds continue to outperform the average actively managed fund. For example:
- Vanguard Total Stock Market ETF: +8.3% in Q3, +17.4% annually
- Vanguard Total International Stock ETF: +6.9% in Q3, +17.2% annually
This reinforces a timeless truth: broad diversification and low fees beat stock-picking over time—especially when markets are frothy.
What Could Go Wrong?
Optimism has its limits. Valuations in AI-related stocks are flirting with bubble territory. Political instability—from Trump’s tariff wars to a federal government shutdown—could trigger volatility. And history reminds us: bull markets don’t last forever.
India’s market, for instance, dropped 7% in Q3 due to U.S.-India trade tensions—a cautionary tale for overconcentration.
Smart Steps for Investors Today
If you’re riding this wave, consider these prudent moves:
- Rebalance your portfolio to match your risk tolerance.
- Trim positions in overheated sectors like AI or gold if they’ve grown too large.
- Bolster safe assets: U.S. Treasuries, high-quality bonds, CDs, or high-yield savings accounts can cushion a downturn.
- Stay invested for the long term—but stay alert.
Sources
Nasty News? Forget About It. The Markets Say All Is Well. – The New York Times
Data from Morningstar and FactSet, as cited in the original article.
