2025 Q3 Mid-Quarter Market Update – In an Uncertain World

Robert Rubin served as Treasury Secretary under President Clinton from 1995-99. After his time in public service, he wrote a memoir entitled In an Uncertain World in 2004. He also happens to be from Miami Beach and is something of a hometown hero for me, having graduated from Miami Beach High School in the same era as my mother and uncle.

We now think of the time he happened to serve as treasury secretary as a glorious time for the economy and markets, with a growing economy and low inflation that was turbocharged by the advent of the internet and the subsequent stock market boom. However, as always, there was plenty of uncertainty, and major financial crises occurred across the globe – in Mexico, Russia, Asia, and Brazil. Domestically, there were government shutdowns over budget disputes and the failure of a major hedge fund called Long-Term Capital Management, which caused a market panic and required intervention by the Federal Reserve.¹Liu, Michael Fleming and Weiling. “Near Failure of Long-Term Capital Management.” Federal Reserve History, www.federalreservehistory.org/essays/ltcm-near-failure.

Rubin’s philosophy is that only real certainty is that there is no certainty. So, is 2025 ‘more uncertain’ than the late 1990’s? Rather than think in certain outcomes, Rubin thinks in probabilities and judging the likelihood of various outcomes. With policy changes there are varying degrees of the probability of success and failure. The more profound the policy changes, the wider the range and magnitude of the outcomes.

It seems we are experiencing more profound changes in policies and trends today than we were in the 90’s, but we also happen to be experiencing the beginning of another major technological advance with the advent of artificial intelligence.

Deglobalization, onshoring, US manufacturing renaissance, ‘closing the border’, and tariffs are the buzzwords of the day. It is too early to have great confidence in the results of these big shifts, but so far so good. GDP grew 3% in the second quarter rebounding from a 0.5% decline in the first quarter.²Cox, Jeff. “U.S. Economy Grew at A 3% Rate in Q2, A Better-than-expected Pace Even as Trump’s Tariffs Hit.” CNBC, 30 July 2025, www.cnbc.com/2025/07/30/gdp-q2-2025-.html. While inflation is ticking up in recent months from 2.3% to 2.7% in July,³Cox, Jeff. “Consumer prices rise 2.7% annually in July, less than expected amid tariff worries.” CNBC, 12 August 2025, https://www.cnbc.com/2025/08/12/cpi-inflation-report-july-2025.html. it has not exploded higher, and the unemployment rate has been in a tight stable range of 4.1%-4.2% from March to July.⁴Cox, Jeff. “U.S. Payrolls Increased by 147,000 in June, More Than Expected.” CNBC, 3 July 2025, www.cnbc.com/2025/07/03/jobs-report-june-2025.html. Corporations are adjusting as best they can, and earnings growth for the second quarter for the S&P 500 was a decent 4.9% with 81% of companies reporting have exceeded expectations which is above historical average of 78%.⁵Butters, John, and John Butters. S&P 500 Earnings Season Update: August 8, 2025. 8 Aug. 2025, https://insight.factset.com/sp-500-earnings-season-update-august-8-2025. What we don’t and can’t know is what activity is not happening because of the tariffs. Would economic growth and earnings have been better?

Potentially offsetting any drags on growth from the tariff regime is massive economic stimulus not coming from government but rather from the investments by major technology companies in artificial intelligence. Tech companies are expected to spend a combined $364 billion this year with Amazon leading the way with $100 billion.  Microsoft is spending $89 billion, Alphabet (Google) is at $85 billion, and Meta (Facebook) is around $70 billion.⁶Bratton, Laura. “Big Tech’s AI Investments Set to Spike to $364 Billion in 2025 as Bubble Fears Ease.” Yahoo Finance, 1 Aug. 2025, https://finance.yahoo.com/news/big-techs-ai-investments-set-to-spike-to-364-billion-in-2025-as-bubble-fears-ease-143203885.html.

The S&P 500 is now up 9.5% for the year, but international stocks are up an impressive 20.7%. Bonds are up 4.4%.⁷Source: Morningstar Direct. Data as of 8/10/2025. After the steep decline in April over the fears of very high tariff rates, markets have accepted the trade frameworks that have been agreed to with the European Union, Japan, and South Korea, and are hopeful that negotiations with China will bear fruit. For countries where high rates have been enacted, like India and Brazil, there are hundreds of exemptions, including semiconductors, pharmaceuticals, aircraft, autos and auto parts, wood pulp, and fertilizers. One area lagging in the equity markets is the US Small Cap index which is flat on the year. Smaller companies have less flexibility to manage around tariffs and the still relatively elevated interest rates. If, as markets now expect, there is a resumption of Federal Reserve cuts in coming months, that could help boost the US Small Caps if economic activity remains sufficiently robust.

Bob Rubin’s book title ‘certainly’ continues to ring true. We have always been and will continue to be in an uncertain world. Through the Team Hewins investment program, we fight that perennial uncertainty through broad diversification across global markets and working with you to ensure that your portfolio is not overexposed to higher risk assets.

Here is some parting perspective from Secretary Rubin:

“Some people I’ve encountered in life seem more certain about everything than I am about anything. That kind of certainty…misunderstands the very nature of reality – its complexity and ambiguity.”   

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