The third quarter delivered another strong result. The S&P 500 Index rose 8%, bringing its year-to-date return to 14%. Bonds have also done well, with the Bloomberg U.S. Aggregate Bond Index up 6% year-to-date. International equities, as measured by the MSCI EAFE Index, are outpacing U.S. markets with a 22% return so far this year. The headline result is unsurprising: markets have delivered strong returns even as economic signals remain mixed.  However, under the surface there have been shifts in leadership, quiet outperformers, and a few surprises, offering reminders of why long-term investing principles remain important in fiduciary investment management.

Some of the most compelling stories aren’t defined by the results, but by how the details unfold. In documentary filmmaking, the goal is often to take familiar events and uncover lesser-known threads that bring the story to life. Think of The Last Dance, the documentary about the 1990s Chicago Bulls, or one of the many incredible documentaries from Ken Burns. The outcomes may be known, but it’s the tension and unheralded characters that make them memorable.

Markets in 2025 seem to be following a similar path. For years, a small group of mega-cap tech stocks, the aptly named “Magnificent 7”, have dominated headlines and driven much of the market’s returns. If this market were a documentary, they'd be the main characters, like Michael Jordan in The Last Dance. This year, though, none of them rank among the top 50 performers in the S&P 500. Instead, companies like GE Aerospace and GE Verona, both from the breakup of the major conglomerate General Electric, are among the performance leaders. This serves as a reminder that shifts in market leadership are often unpredictable and can be the quiet driver of success for diversified investors.

Meanwhile, international stocks have been methodically gaining ground, especially in sectors like financials and energy. International value stocks have now outperformed the S&P 500 over the past 12 months. Their recent strength likely reflects lower valuations and a weaker U.S. dollar, which is counter to the growth and technology drivers in U.S. markets.  Time will tell if those initial inferences ring true, which is a common theme of many unexpected characters in a documentary.

Small-cap stocks also saw a resurgence in the third quarter. The Russell 2000 Index rose roughly 12.5%, outpacing its larger counterparts. While some of that performance came from lower-quality names, it suggests investors are looking more broadly and not just focusing on a small number of the largest companies.  And one of the quieter, but most meaningful, shifts has happened in the bond market. After years of low yields and a difficult 2022, bonds are once again adding value to portfolios. With yields now outpacing inflation in many areas, fixed income is providing meaningful income and helping to reduce risk in balanced portfolios.

While diversified investors have benefited from many of these changing factors, the economic picture continues to be challenging. Labor market growth has slowed, consumer confidence has been cautious, and inflation has ticked up. The Federal Reserve made its first rate cut of 2025 in the third quarter, and more cuts are expected. However, markets remain optimistic, and this kind of disconnect is often a reason to stay balanced–in both expectations and approach.

This year has shown that several compelling under-the-surface stories have emerged.  Not long ago, international value stocks, small caps, and bonds were being overlooked. Today, they’re helping support returns.  These are reminders for why continued focus on diversification can help portfolios adapt over time. Remaining disciplined in an investment process helps to navigate uncertainty and remain on course, even when unexpected events unfold.

Investing involves risks, including possible loss of principal. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass.

Investment Advisory Services are provided through True Link Financial Advisors, LLC, (the “Adviser”) an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) and wholly-owned subsidiary of True Link Financial, Inc. (“True Link Financial” and, together with the Adviser, “True Link”) Registration with the SEC does not imply a certain level of skill or training nor does it constitute an endorsement of the advisory firm by the SEC. The performance of investments will vary day to day in response to many factors. Asset allocation strategies are subject to the volatility of the financial markets, including without limitation that of the underlying investment options’ asset class. An investment is subject to a high degree of risk, including the risk of loss of an investor’s entire investment, and diversification does not ensure a profit or guarantee against a loss. Nothing contained herein is considered an offer to sell or a solicitation of any offer to buy any securities.