U.S. large-cap stocks rose 8% in the third quarter while small caps gained 12%, reaching their highest levels since November 2021. U.S. intermediate-term bonds ended the quarter up 2%.
Since ChatGPT’s launch, mega-cap tech companies have more than doubled their AI- related capital expenditures, and hyperscalers are expected to spend $340 billion on AI in2025.
On September 17, with inflation floating above its official 2% target, the Federal Reserve cut interest rates by 0.25%, citing labor market concerns and a slowdown in economic activity.
The Fed’s dual mandate—to balance price stability with maximum employment—now seems suspended somewhere between caution, cutting rates at the first sign of labor softening, and complacency, easing policy while inflation remains above target.
The Fed’s decisions come while the market appears increasingly bubblicious, with exciting developments in AI, among other areas, but growing signs of excess.
3Q 2025 Commentary: Bubblicious
Summary
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