In what has been a tumultuous and unpredictable year, the third quarter qualifies as a period of normalcy. That should make investors happy.
There is no doubt that 2025 has been a wild ride, from tariffs to war, but as DataTrek Research co-founder Nicholas Colas notes, extraordinary circumstances have dominated the market even as far back as the end of 2024.
Consider that the fourth quarter of that year was marked with the closely contested presidential election and then the post-results rally. And while that was a strong finish, it again was thanks to just a handful of the usual suspects.
“U. S. Big Tech represented 166% (yes, well more than all) of the S&P 500’s gains in the fourth quarter 2024, or 3.4 percentage points out of the index’s 2.1 percent price return,” writes Colas. In other words, without Big Tech, the index would have fallen.
Things got even stranger in 2025. The first quarter of the year was marked by uncertainty about what would happen in a second Trump presidency. The dollar’s strength unwound and both developed and emerging-market stocks performed better than U.S. equities.
What had been an asset for domestic markets became a liability after DeepSeek’s debut made investors question the U.S.’s supremacy and spending in artificial intelligence. Big Tech was responsible for the S&P 500’s quarterly decline, Colas says.
The second quarter brought the biggest zigzags of all, with the “Liberation Day” tariff news. The dollar continued to weaken, stocks abroad rallied, and just two of the Magnificent Seven stocks—Microsoft and Nvidia—accounted for just under half of the S&P 500’s quarterly gain.
“Against these highly volatile comps, the third quarter of 2025 looks downright calm by comparison,” writes Colas. The currency market was quieter, the S&P 500 did slightly better than stocks abroad, and even small-caps finally joined the rally.
Although Big Tech still accounted for more than two-thirds of the S&P 500’s gains, at least more stocks within that area made gains. Apple and Alphabet, which had lagged behind the market, made comebacks.
“Investors do not expect markets to be entirely predictable, but they do want them to be understandable and exhibit only moderate volatility regardless of near-term direction,” Colas writes. “The last 90 days were the first stretch in a year with those attributes, a welcomed change from the recent past. We see that as helping near term investor confidence.”
The fourth quarter is a historically strong one for markets. Hope for continued strength in the economy and enthusiasm about AI means that Colas isn’t the only bullish voice.
Even many strategists who do see a potential pause consider it as more like a speed bump than a road block.
“Equity markets remain constructive heading into the fourth quarter, unfazed by the U.S government shutdown,” writes Craig Johnson, Piper Sandler’s chief market technician. “However, signs of waning breadth and momentum suggest a modest consolidation phase may develop in the coming weeks. Investors should remain vigilant while taking advantage of the sector rotations within the current bull market.”
In short, 2025 has been interesting to say the least. But sometimes boring can be beautiful too.
Write to Teresa Rivas at teresa.rivas@barrons.com
