2025 Q3 In Review: Market Leadership and Market Discipline

​What we saw:

The S&P 500 Index was up 8.12% on a total return basis in the third quarter of 2025, marking a second consecutive strong quarter after a challenging start to the year. As anticipated, some volatility surrounded the Federal Reserve’s July meeting, but overall, equity markets trended steadily higher.

Over the past three years, the S&P 500 has delivered a 95.0% cumulative return (24.9% annualized) on a total return basis from Q3 2022 through Q3 2025. In comparison, the S&P MidCap 400 Index rose 55.4% (15.8% annualized) and the S&P SmallCap 600 Index gained 43.6% (12.8% annualized).

A notable driver of large-cap strength has been the outsized contribution of a handful of mega-cap technology and communication names. Seven companies—Nvidia, Microsoft, Apple, Meta, Broadcom, Amazon, and Alphabet—accounted for roughly 45% of the S&P 500’s total return over this three-year period, underscoring the market’s continued concentration in a few large names. This concentration among a handful of names is well documented.

Large-cap leadership is not unprecedented. The last time the S&P MidCap 400 outperformed the S&P 500 on a rolling five-year basis was 2012–2016. This raises an important consideration for investors: while leadership trends can persist for periods of time, history shows they often evolve. The key question may be how and when leadership could broaden beyond the largest companies—and what conditions might support that shift.

Outside the U.S., performance trends have been more mixed. Over the five years ending in 2024, the MSCI EAFE Index—a measure of developed markets in Europe, Australasia, and the Far East—returned about 29.1% (5.2% annualized), compared with the S&P 500’s 97.0% (14.5% annualized) gain over the same period. However, in 2025, international markets have shown renewed momentum: the EAFE is up approximately 25.7% year-to-date through September, versus 14.8% for the S&P 500.

Gold has also drawn renewed investor interest, advancing meaningfully in 2025 after nearly a decade of muted returns. Together, these developments may suggest that market leadership may be widening, at least temporarily. The question now is whether this broadening marks the start of a longer-term shift—or simply a pause before U.S. large caps reassert dominance.

What we’re watching:

We continue to see potential opportunities beyond the largest stocks in the S&P 500.  Recent discussions in the market have focused on how artificial intelligence (AI)–related companies are increasingly deriving meaningful portions of their revenue from one another, raising questions about the sustainability of this growth and whether valuations fully reflect long-term fundamentals.

According to company disclosures, four of the seven mega-cap technology firms mentioned earlier are among Nvidia’s top five customers, representing roughly 41% of Nvidia’s total revenue. This interdependence highlights how tightly linked many of the largest AI players have become.

Whether AI represents a bubble remains uncertain.  The technology has transformed how people work and live in a short period of time – much as the internet did in the late 1990s, a period that also saw rapid innovation accompanied by heighted market speculation. In our view, compelling opportunities exist outside of this dominant trend, potentially with lower valuation risk.

As Warren Buffett observed,

​    — The Tao of Warren Buffett, Mary Buffett & David Clark (Scribner, 2006), p. 145. (Quotation reproduced as compiled in the book; primary meeting transcript not cited in source.)[1]

This perspective reminds investors that they don’t need to swing at every pitch—particularly when enthusiasm concentrates in one theme or sector. As markets focus narrowly on a single idea, other areas often become overlooked and undervalued.

While upcoming Federal Reserve meetings and evolving expectations for rate cuts may introduce volatility in the fourth quarter, we remain focused on seeking those overlooked opportunities across the market.

[1] The quotation appears in The Tao of Warren Buffett (Mary Buffett & David Clark, Scribner, 2006, p. 145) and is attributed there to a 1999 Berkshire Hathaway Annual Meeting. We could not locate this exact phrasing in available transcripts; however, Mr. Buffett has expressed similar views on investment discipline and selectivity in verified settings such as the 1997 Berkshire Hathaway Shareholder Letter and the HBO documentary Becoming Warren Buffett (HBO Documentary Films, premiered January 30, 2017).

​Important Disclosures:

This material is provided for informational purposes only and should not be considered investment advice, a recommendation, or a solicitation to buy or sell any security. The opinions expressed reflect current market conditions as of the date indicated and are subject to change without notice.

This commentary may contain forward-looking statements regarding market trends or investment opportunities. These statements are based on current expectations and analysis, which may prove to be incorrect. Actual results may differ materially from any projections or expectations expressed herein.

Past performance does not guarantee future results. All investments involve risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss in declining markets.

Index performance is shown for illustrative purposes only. You cannot invest directly in an index. Indices are unmanaged and do not reflect management fees, expenses, or taxes that would reduce returns for an investor.

Definitions:

S&P 500 Index: A market capitalization–weighted index that measures the performance of 500 leading publicly traded large-cap U.S. companies. The index is designed to represent the large-cap segment of the U.S. equity market.

S&P MidCap 400 Index: A market capitalization–weighted index that measures the performance of 400 mid-sized U.S. companies. It represents the mid-cap segment of the U.S. equity market.

S&P SmallCap 600 Index: A market capitalization–weighted index that measures the performance of 600 small-sized U.S. companies. It represents the small-cap segment of the U.S. equity market.

MSCI EAFE Index: A free-float–adjusted, market capitalization–weighted index designed to measure the equity market performance of developed markets outside of the United States and Canada. EAFE stands for Europe, Australasia, and Far East.

Total Return: A measure of investment performance that includes both price changes and reinvested dividends or interest. Total return reflects the full impact of income and capital appreciation.

Diversification: An investment strategy that involves spreading assets across various sectors, industries, or asset classes to help reduce exposure to any single risk. Diversification does not ensure a profit or protect against loss in declining markets.

Volatility: A statistical measure of the dispersion of returns for a given security or market index, often used as an indicator of risk. Higher volatility generally indicates larger price fluctuations over a given period. be incurred by an investor.

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