Well, the third quarter is over which means that 2025 is now 75% over. What will the last 25% of the year bring? Will Santa bring coal or more presents to investors?
By looking at returns for the third quarter and year to date, we can make some conclusions about how the year should play out from here.
Stocks had a great quarter. The S&P 500, NASDAQ Indexes, S&P 400 Midcap Index, Russell 2000 and the Dow Jones Industrials were higher by at least 5%. The Russell 2000 led the way gaining 12.02% and the NASDAQ Composite came in second with a gain of 11.24%.
Year to date only the S&P 400 MidCap Index was up less than 5% as it rose 4.57%. All other indexes rose between at least 9% to a bit more than 17%. Seasonally stock indexes once they clear mid-October tend to trade higher into early December before seeing some weakness into the third week of December.
Our favorite play would be to own the laggard which would be the S&P 400 MidCap. This is really interesting as usually the S&P 400 outperforms the Russell 2000 but not this year.
That said, we think it will and like the S&P 400 MidCap ETF (MDY) as a play for the fourth quarter.
Bonds also had a decent quarter and are all higher for the year. The iShares 20 Year Treasury Bond ETF (TLT) rose 1.27% for the quarter and is up for the year by 2.34%. Second, the iShares Investment Grade Bond ETF (LQD) rose 1.70% for the quarter and 4.33% for the year. The most speculative Bond ETF is the iShares High Yield Bond ETF (HYG) that rose 0.67% in the quarter and is up 3.23% for the year.
All three pay out yields respectively at 4.33%, 4.35% and 5.70% on TLT, LQD and HYG. Added to the returns in the above paragraph, Bonds are having a decent year. Key to continued performance of Bonds will be inflation remaining under control as well as the economy not getting too hot. Currently, neither appear to be an issue.
Like Bonds, Stocks will continue to advance with inflation under 3.00% and the economy not getting too hot which would cause interest rates on the 20-Year to rise above 5.00%. Earnings season will start in a couple weeks and the market should see decent growth like it did in the second quarter maybe letting the S&P 500 clear 7000 by year end.
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