The third quarter of 2025 started with surprising market strength despite lingering uncertainty. Investors remain cautious, though, thanks in part to Trump’s second-term policies, which include new tariffs and the One Big Beautiful Act. Even as these policies begin to reshape the economic landscape, consumer sentiment continues to lag, despite positive economic data, including improving GDP projections, corporate earnings, and a market that has continued to climb in the third quarter.
Consumer Sentiment Remains Low Despite Strong Economic Data
Let’s start with the elephant in the room: Consumer Sentiment. By May, consumer sentiment dropped to levels not seen since the Great Recession, despite unemployment at 4.1% and the economy continuing to add jobs.
Some analysts and headlines are referring to this drop in sentiment as a “vibe-cession,” a term used to describe the disconnect between how the economy feels and its actual performance. In short, people feel like the economy isn’t doing well or won’t do well in the future, and yet, according to the data, the economy is showing positive results.
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Source: FactSet, Standard & Poor’s, University of Michigan, J.P. Morgan Asset Management.
Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only starting from the end of the month and excluding dividends. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – U.S. Data are as of June 30, 2025.
A key concern that contributes to this is home affordability. Since 2020, home prices have climbed much faster than incomes. Higher mortgage rates, property taxes, and insurance costs are making homeownership more expensive and difficult to achieve, especially for first-time homeowners or those considering vacation properties.
GDP and Jobs Stay Strong
If we look at a more macro level of the economy, we see positive results in GDP growth and the U.S. job market. The slight GDP contraction in Q1 appears to be a temporary result of front-loaded spending on imports ahead of April’s new tariffs. As of June, the Atlanta Fed expects a 2.5% GDP rebound following Q2 as consumers and businesses focus a good bit of their spending here in the U.S., with major institutions broadly in agreement. Job openings remain strong at over 7 million, and while unemployment claims edged up, the labor market continues to look healthy.
Continued strength in the labor market is also easing concerns about a recession. Non-farm payrolls show positive monthly gains and even though the rate of growth is slowing, more jobs are being added than lost.
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Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts
Note: The top (bottom) 10 average forecast is an average of the highest (lowest) 10 forecasts in the Blue Chip survey.
Tax Change for the OBBB Act
The OBBB (One Big Beautiful Bill) Act, signed in July, introduced higher standard deductions, eliminated taxes on tips and overtime, and raised the estate tax exclusion for couples to $30 million. While these changes create opportunities for tax planning, the Congressional Budget Office now expects the federal deficit to exceed 7% of GDP with these cuts. Interest on federal debt is rising quickly, and both political parties have yet to offer sustainable solutions, so this is an area we’ll be watching closely in the coming months.
Valuations Up, Global Stocks Leading
As of June 30, 2025, the S&P 500 was trading at 22.2 times earnings, compared to its long-term average of 17. Analysts project 9% earnings growth in 2025, but tariffs may impact corporate margins. Vanguard forecasts lower upcoming 10-year annualized returns for U.S. large-cap stocks and sees stronger returns attributed to international, small-cap, and value stocks. Year-to-date through the end of June, international equities are outperforming U.S. equities.
Private and Fixed Income Markets
Private equity, credit, and real estate continue to gain traction as portfolio diversifiers. With 86% of large U.S. companies still private, private markets provide exposure to a broader set of investment opportunities.
Meanwhile, publicly-traded bonds regained footing after a difficult 2022, with a 4% gain so far this year as of June 30th. Treasury yields remain above 4.4%, and municipal bonds continue to offer attractive after-tax returns. Bonds remain a valuable tool for income and risk management, particularly for retirees and high-income investors.
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Source: BIS, FactSet, IMF, MSCI, J.P. Morgan Portfolio Insights, J.P. Morgan Asset Management.
Guide to the Markets – U.S. Data are as of June 30, 2025.
Politics and Market Behavior
Investor sentiment is often influenced by political beliefs. Republican-leaning investors generally feel optimistic this year, while Democrat-leaning investors tend to be more cautious, despite the same economic data released to everyone. However, the data on this topic is clear: The market responds to business fundamentals, not political affiliation.
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Source: Pew Research Center, J.P. Morgan Asset Management.
The survey was last conducted in April 2025. Pew Research Center asks the question: “Thinking about the nation’s economy, how would you rate economic conditions in this country today... as excellent, good, only fair, or poor?” S&P 500 returns are average annualized total returns between presidential inauguration dates and are updated monthly.
Guide to the Markets – U.S. Data are as of June 30, 2025
Should You React to Market Volatility
As volatility persists and headlines shift rapidly, it's natural for investors to feel uncertain about what comes next. Data shows that emotional decisions, especially in response to short-term market swings, often lead to underperformance. Despite differing political outlooks or economic fears, the fundamentals remain: businesses continue to innovate, jobs are being added, and earnings are still growing. Market cycles will always bring ups and downs, but staying invested through those cycles has historically produced far better results than trying to time them.
As we look to the closing months of the year, maintaining perspective and avoiding overreactions may prove just as important as any single investment choice.
