Atlas Meridian Capital
Atlas Meridian Capital | Q3 2025 Quarterly Investment Commentary
Equity, fixed income and alternative asset classes performed well during the Q3. Equities extended their advance, and fixed income delivered positive returns despite a complex macroeconomic backdrop.
Returns were powered by expectations for a shift towards a more accommodative monetary policy on the part of the Federal Reserve coupled with easing concerns around trade conflicts and the powerful contributions to growth from burgeoning investments in AI technologies.
Executive Summary: Q3 2025 Investment Commentary
The third quarter of 2025 marked a period of notable stability and growth within global markets, demonstrating resilience amidst ongoing economic shifts. This summary encapsulates the essential performance metrics, key economic drivers, central bank policy adjustments, and critical investment implications for investors.
Market Performance
  • Global equities continued their upward trajectory, driven by strong corporate earnings and investor confidence.
  • Fixed income markets saw positive returns, benefiting from shifting interest rate expectations.
  • Overall resilience across capital markets, overcoming initial volatility earlier in the year.
Economic Developments
  • Inflation remains a concern, though signs of moderation emerged in specific sectors.
  • Labor markets exhibited evolving conditions, with continued low unemployment alongside shifts in wage growth.
  • Key sectors like technology and renewable energy showed accelerated growth, influencing broader market trends.
Federal Reserve Policy
  • The Federal Reserve initiated a strategic pivot towards policy accommodation, signaling a potential softening of monetary stance.
  • This shift was largely in response to decelerating inflation trends and stabilization in employment data.
  • Anticipation of future policy decisions played a significant role in market sentiment and asset allocation.
Investment Implications
  • Investors are advised to navigate with caution, prioritizing diversified portfolios and robust risk management.
  • Opportunities lie in sectors benefiting from structural growth and those demonstrating strong pricing power against inflation.
  • Active management and tactical asset allocation are crucial to capitalize on evolving market dynamics and policy shifts.
Market Overview & Key Takeaways
Policy Pivot Underway
The Federal Reserve initiated a modest pivot to accommodation, cutting the federal funds rate by 25 basis points in September amid clear signs of labor market cooling.
This marked a significant inflection point in monetary policy after an extended period of restrictive rates designed to combat inflation.
Equity Momentum
Equities continued their advance in Q3, driven by optimism over artificial intelligence, easing monetary policy, and resilient corporate earnings.
This optimism offset persistent concerns about inflation pressures and emerging labor market softness.
Fixed Income Gains
Fixed income markets delivered positive returns across multiple segments.
This was significantly helped by yield declines following the Fed's rate cut and credit spread compression throughout investment-grade and high-yield sectors.
GDP Resilience
GDP momentum remained solid throughout the quarter, with Q3 real growth projected near 3.8% on a seasonally adjusted annual rate basis.
This demonstrates the underlying strength of the U.S. economy despite existing headwinds.
While markets delivered strong performance, several crosscurrents demand attention:
  • Labor markets are demonstrating clear signs of softening, including downward revisions to prior job gains, slower hiring momentum, and rising quit rates.
  • However, the data does not suggest an imminent collapse.
  • Simultaneously, inflation remains sticky above the Federal Reserve's 2% target.
These factors complicate the trajectory of further rate cuts and create uncertainty around the pace and magnitude of future policy accommodation. These dynamics create a nuanced environment requiring sophisticated portfolio positioning.
Asset Class Performance Snapshot
The performance matrix for Q3 2025 reveals a broadly constructive environment across asset classes. Equities led the advance, and fixed income provided positive contributions despite the challenges of transitioning to a less restrictive monetary policy stance.
The S&P 500's +7.8% quarterly return brought year-to-date gains to an impressive +13.67%. This reflects the market's ability to look through near-term uncertainties and focus on longer-term structural growth narratives, particularly around artificial intelligence and digital transformation.
Equity Market Leadership
Within equities, strength was broad-based but not uniform. Small-cap indices, represented by the Russell 2000, delivered approximately +12.0% in Q3.
This recovery from steep first-quarter declines benefited from expectations that lower rates would particularly advantage smaller, more domestically focused companies with higher debt burdens.
Fixed Income Contribution
Fixed income markets demonstrated their diversification value:
  • Global investment-grade bonds returned approximately +1.9%.
  • U.S. high yield delivered a more robust +2.4%.
Credit markets rallied as spreads compressed, reflecting investors' confidence in corporate fundamentals and a reduced recession probability.
Equity Market Deep Dive
Market Capitalization Dynamics
The third quarter revealed fascinating dynamics across the market capitalization spectrum, with smaller companies staging an impressive comeback after a challenging start to the year.
Small-cap indices led performance with an approximately +12.0% gain in Q3, as investors positioned for a lower interest rate environment that would particularly benefit companies with higher leverage and more domestic revenue exposure.
Mid-cap names also participated in the rally, though to a somewhat lesser degree, while large-cap growth and technology stocks continued their dominance driven by structural earnings momentum and favorable macroeconomic tailwinds related to artificial intelligence adoption and cloud computing expansion.
Small-Cap Recovery
Russell 2000 ~+12.0% quarterly return representing significant recovery from Q1 weakness
Mid-Cap Participation
Mid-cap indices contributed positively though lagged small-cap leadership
Large-Cap Dominance
Technology and growth names continued structural outperformance trends
Style Factor Performance
Growth Stocks Outpace Value
Growth stocks easily outpaced value counterparts during Q3, continuing a multi-quarter trend favoring companies with superior earnings growth trajectories and exposure to transformational technology themes.
Value Segments Lag
Value segments, exemplified by the Russell 1000 Value index with its +4.8% return, still delivered respectable positive returns but lagged significantly compared to growth-oriented strategies.
The persistent style rotation toward growth reflected investor preference for companies benefiting from artificial intelligence, software-as-a-service business models, and cloud infrastructure buildout—all secular trends expected to compound over multiple years regardless of near-term economic fluctuations.
Sector Performance Analysis
The third quarter saw varying performance across different sectors, reflecting shifts in market sentiment and economic conditions. Below is a breakdown of key sector movements:
Information Technology: +11.3% - Confirmed leadership role driven by AI adoption, semiconductor strength, and enterprise software demand. Represented the strongest performing major sector with broad-based participation across hardware, software, and services subsegments.
Communication Services: +9.1% - Delivered strong performance supported by digital advertising recovery, streaming platform profitability improvements, and continued growth in interactive media and entertainment segments.
Cyclical Sectors: +4-5% - Industrials, Materials, and Financials posted modest but positive gains, participating in the broader market uptrend while remaining somewhat sensitive to economic growth trajectory concerns.
Consumer Staples: -3.2% - Represented one of the only major sector decliners, pressured by margin compression concerns, competitive dynamics, and rotation away from defensive positioning as growth optimism increased.
Real Estate demonstrated relatively weak gains at +1.7%, constrained by persistent concerns about commercial property fundamentals, work-from-home trends affecting office demand, and the sector's traditional sensitivity to interest rate movements despite the quarter's monetary policy easing.
Fixed Income Market Analysis
Aggregate Market Performance
The fixed income landscape delivered positive returns across virtually all major segments during Q3. This reflected a powerful combination of factors:
  • Federal Reserve rate cuts
  • Credit spread compression
  • Generally constructive sentiment toward corporate fundamentals
Global investment-grade bonds returned approximately +1.9% for the quarter. U.S. high yield posted a more robust +2.4%, demonstrating investors' willingness to embrace credit risk in pursuit of incremental yield and total return potential.
Duration Dynamics
Duration positioning proved critical to fixed income returns during the quarter.
  • Short and intermediate maturities benefited substantially from rate cuts and falling short-term yields. The Federal Reserve's policy pivot reduced yields across the front end of the curve.
  • Long-dated Treasuries posted more modest gains of approximately +1.3%. This was due to the yield curve steepening from prior levels, with the longer end of the curve remaining somewhat elevated on persistent inflation concerns and fiscal deficit considerations.
Credit Sector Performance
Investment Grade Corporates
Delivered modest positive returns as spread compression offset some duration sensitivity. Credit quality remained stable with minimal downgrades, supporting investor confidence in:
  • Corporate balance sheet strength
  • Debt service capacity, even as economic growth moderates from peak levels
High Yield Leadership
Led among credit sectors with strong performance, reflecting broad risk-on sentiment and an improving outlook for default rates. Key factors supporting tight spreads and positive total returns included:
  • Still-healthy corporate earnings
  • Refinancing opportunities at lower rates
  • Technical supply-demand dynamics
Foreign & Emerging Credit
Benefited substantially from foreign exchange tailwinds as the U.S. dollar weakened, alongside global spread tightening dynamics. Local currency debt performed particularly well as central banks in developed and emerging markets maintained accommodative stances, supporting asset prices.
Fixed Income: Valuation & Risk Assessment
From a valuation perspective, Treasury and corporate bond yields remain elevated compared to the ultra-low rate environment of earlier years. This provides attractive carry opportunities for investors willing to accept duration and credit risk.
Credit spreads have tightened meaningfully but have not reached extremely compressed levels that would signal excessive risk-taking or complacency. Some cushion remains to absorb potential volatility if economic conditions deteriorate or market sentiment shifts.
However, duration risk remains nontrivial and demands careful management:
Should inflation surprise to the upside or policy tightening concerns resurface due to overheating in certain economic sectors, longer-duration bonds would be particularly vulnerable to price declines
This dynamic argues for maintaining flexibility in duration positioning and potentially favoring a barbell structure that combines shorter-maturity positions for stability with selective longer-duration exposure where compensation appears adequate for the risks assumed
The municipal bond segment likely followed investment-grade corporate trends with some additional volatility depending on state-level credit conditions and tax policy considerations affecting demand from high-net-worth investors.
Economic Backdrop: Growth Dynamics
3.8%
Q3 GDP Growth
Atlanta Fed GDPNow estimate as of early October (SAAR)
3.8%
Q2 GDP Growth
Bureau of Economic Analysis final reading, up from revised Q1
7.9%
Earnings Growth
S&P 500 Q3 projected year-over-year growth rate
The U.S. economy demonstrated remarkable resilience during Q3 2025. The Atlanta Federal Reserve's GDPNow model estimated real GDP growth at 3.8% on a seasonally adjusted annual rate basis as of early October. This robust pace matched the Bureau of Economic Analysis's Q2 results, which also showed 3.8% growth, a significant improvement from a revised first-quarter contraction.
However, the strength in headline GDP requires nuanced interpretation. Final domestic demand—the combination of consumer spending and business investment—represents the core driver of sustainable growth. Volatile swings in exports, imports, and inventory adjustments can distort quarter-to-quarter comparisons.
Corporate Profitability Trends
Corporate earnings estimates for Q3 remained robust, with S&P 500 constituents projected to deliver approximately 7.9% year-over-year growth in aggregate profits. This healthy expansion reflected several factors:
  • Continued pricing power in many industries
  • Operational efficiency improvements
  • Ongoing benefits of technological transformation
Technology and semiconductor companies drove much of the upside, capitalizing on artificial intelligence infrastructure buildout and enterprise digital transformation spending. Non-technology sectors like consumer discretionary and energy exhibited more divergent performance. Margin pressures from input costs and wage inflation created headwinds, offsetting revenue growth in some cases.
The sustainability of profit margins remains a critical watch item for investors. While companies have demonstrated pricing power and cost management discipline, persistent inflation in certain input categories and ongoing wage pressures create an environment where margins could compress. This could happen if demand softens or competitive dynamics intensify.
The bifurcation between technology-related sectors, which are enjoying strong structural demand, and more cyclical industries facing tougher operating environments, suggests selectivity will prove increasingly important in equity positioning. This is especially true as the cycle matures and easy monetary policy support potentially diminishes.
Consumer & Business Activity
1
Consumer Spending
Continues holding up with particular strength in services segments, including leisure, hospitality, and experiences.
2
Business Investment
CapEx rebounding modestly, supported by tax incentives and technology modernization imperatives.
3
Housing Weakness
Residential construction and builder activity remain under pressure from elevated rates and affordability constraints.
4
Trade Volatility
Import and export flows continuing to induce volatility in quarterly growth measures.
Labor Market Evolution
The labor market narrative underwent significant revision during Q3, creating important implications for monetary policy expectations and economic forecasting.
Benchmark revisions to the establishment survey revealed that prior 12-month job gains had been overstated by approximately 911,000 positions. This was a substantial downward adjustment, suggesting the labor market had been cooling for longer than originally appreciated.
This revision, combined with real-time data showing moderating hiring momentum, elevated the importance of labor market dynamics in Federal Reserve decision-making and market pricing of the policy path.
911K
Job Gains Revision
Downward benchmark adjustment to prior 12-month employment gains
4.2%
2025 Unemployment Forecast
Philadelphia Fed Survey of Professional Forecasters average estimate
4-4.3%
Current Unemployment Range
Recent monthly readings showing gradual upward drift
Employment Trend Analysis
Multiple indicators beyond headline payroll numbers signal labor market softening:
  • The quits rate, a measure of worker confidence in finding alternative employment, has declined from cycle highs. This suggests reduced labor mobility and potentially diminished wage bargaining power.
  • Job posting activity across major platforms has moderated, indicating employer caution about expanding headcount in an uncertain economic environment.
  • Labor force participation rates have shown mixed signals, with some demographic cohorts remaining on the sidelines despite improved wage offers.
Despite these signs of cooling, the labor market cannot be characterized as collapsing or in crisis. Unemployment remains in the 4.0-4.3% range, which are historically low levels that still represent relatively tight conditions by longer-term standards.
The Philadelphia Fed's Survey of Professional Forecasters projects 2025 average unemployment around 4.2%, suggesting expectations for continued modest softening rather than sharp deterioration. Initial jobless claims, a high-frequency indicator of labor market stress, have remained well-contained without showing the persistent elevation that typically precedes recession.
For investment strategy, these labor market dynamics create a nuanced picture. The softening trend supports the Federal Reserve's pivot toward policy accommodation and reduces the probability of additional tightening that would pressure risk assets.
However, further meaningful deterioration in employment conditions could shift the narrative from "soft landing" to "growth scare." This could potentially trigger equity multiple compression, even if lower rates provide some offset. Monitoring leading indicators, including temporary help employment, average workweek hours, and industry-level hiring plans, will be critical for anticipating inflection points that might require portfolio repositioning.
Sentiment Indicators & Forward-Looking Considerations
Consumer Sentiment
Survey measures showed signs of deterioration during Q3. Consumers expressed increased caution about future economic prospects, despite resilient current spending patterns. The disconnect between sentiment and behavior merits attention, as eventual spending could align with weaker confidence.
Small Business Concerns
Optimism among small business owners declined in recent months. Rising input cost concerns and uncertainty about demand trajectory weighed on expansion plans. Access to credit and labor availability also featured as persistent challenges in survey responses.
Manufacturing Softness
Purchasing Managers' Index readings showed softened manufacturing activity, with new orders and production growth slowing. Services PMIs demonstrated more stability, reinforcing the bifurcated nature of the economy between goods-producing and service-providing sectors.
The divergence between sentiment indicators and actual economic activity represents one of the more puzzling aspects of the current environment. Consumer confidence surveys suggest heightened pessimism and concern about future conditions, yet consumer spending—particularly in services categories—continues to demonstrate resilience.
This disconnect could reflect several factors:
  • Sentiment surveys may capture political polarization and media negativity rather than true economic distress.
  • Consumers with strong balance sheets and employment situations may spend despite expressing worry.
  • The lag between sentiment deterioration and spending weakness may simply not have manifested yet.
For institutional investors, forward-looking indicators deserve particular scrutiny as potential signals of inflection points that might require portfolio adjustments. Key areas to monitor include:
  • Business Investment: Surveys and capital expenditure plans provide insight into corporate confidence about future demand and return prospects.
  • Housing Market: Indicators like mortgage applications, builder sentiment, and existing home sales offer windows into consumer willingness to make large, leveraged purchases.
  • Trade Data: Logistics metrics can signal shifts in global demand patterns ahead of their reflection in corporate earnings reports.
Policy Uncertainty
With the 2026 fiscal year budget discussions approaching and various policy proposals under debate, uncertainty around tax policy, regulatory direction, and government spending could influence both business investment decisions and market valuations.
Historical patterns suggest elevated policy uncertainty tends to correlate with increased equity volatility and some multiple compression.
Geopolitical Monitoring
International developments, including trade relationships, supply chain configurations, and regional stability factors, continue to influence commodity prices, currency movements, and global growth trajectories.
The interconnected nature of modern economies means localized disruptions can cascade through financial markets with surprising speed.
Portfolio Strategy Insights
Navigating the current environment requires a nuanced approach that balances multiple competing considerations. This involves capturing upside from continued economic resilience and structural growth themes, while simultaneously maintaining defensive positioning against potential volatility.
Key risks to consider include inflation surprises, policy missteps, or external shocks. The following framework represents institutional best practices for portfolio construction given current market conditions and forward-looking risk-reward dynamics across asset classes.
Equity Positioning Strategy
Large-Cap Growth Tilt
Maintain an overweight position in large-cap growth and secular technology names benefiting from:
  • Artificial intelligence adoption
  • Cloud computing expansion
  • Digital transformation
Quality characteristics such as strong balance sheets, pricing power, and capital efficiency argue for sustained multiple support.
Quality & Balance
Include resilient sectors such as industrials and select cyclicals for diversification benefits and participation in capital expenditure cycle recovery. It is important to:
  • Avoid overly stretched valuations
  • Steer clear of names with deteriorating fundamentals, regardless of sector or theme attractiveness
Selective Small & Mid-Cap
Approach smaller capitalization segments selectively, focusing on companies with:
  • Strong competitive positions
  • Improving profitability trajectories
  • Reasonable valuation support
Lower rates benefit leveraged balance sheets, but execution risk remains elevated for many names in these segments.
Fixed Income Strategy
Navigating the current environment requires a nuanced approach that balances multiple competing considerations. This involves capturing upside from continued economic resilience and structural growth themes, while simultaneously maintaining defensive positioning against potential volatility. Key risks to consider include inflation surprises, policy missteps, or external shocks. The following framework represents institutional best practices for portfolio construction given current market conditions and forward-looking risk-reward dynamics across asset classes.
For fixed income portfolios, the current landscape demands careful consideration of duration, credit quality, and specific market opportunities to optimize yield while managing risk:
Intermediate Credit Preference
Favor intermediate maturity investment-grade and high-yield credit over long-duration Treasuries. This strategy aims to capture attractive spread compensation while limiting duration risk from potential inflation surprises or policy adjustments.
Municipal Opportunities
Tax-advantaged municipal bonds offer compelling after-tax yields for appropriate investors, particularly in higher-quality segments where credit fundamentals remain sound and spread compensation appears adequate.
Barbell Structure
Consider barbell positioning that combines shorter maturities for stability and liquidity with selective longer-duration exposure where yield pickup justifies the interest rate risk assumed.
Risk Management & Hedging
Prudent risk management requires acknowledging scenarios that could materially impact portfolio returns and implementing appropriate hedging strategies or position sizing to limit downside exposure.
Key risks to monitor include:
Inflation reacceleration
Forcing Federal Reserve policy reversal.
Sharper-than-expected labor market deterioration
Triggering recession fears.
Credit stress
In particular sectors or companies leading to wider spread volatility.
Geopolitical events
Creating sudden market dislocations.
Maintaining "dry powder" (undeployed capital or highly liquid positions) provides flexibility to act opportunistically during inevitable volatility episodes. Options strategies, such as protective puts on equity indices or rates volatility positions, can offer portfolio insurance at reasonable cost in current volatility regimes.
Systematic rebalancing disciplines ensure portfolios do not drift excessively toward winners, while also systematically adding to positions offering improved risk-reward profiles after selloffs.
Conclusion & Outlook
The third quarter of 2025 delivered strong absolute returns across most asset classes, validating strategies that maintained equity exposure while diversifying across high-quality fixed income segments. The combination of Federal Reserve policy accommodation, resilient economic growth, and robust corporate profitability created an environment supportive of risk assets despite persistent crosscurrents from sticky inflation and moderating labor markets. As we look toward the final quarter of 2025 and into 2026, the investment landscape presents both opportunities and challenges that demand sophisticated analysis and nimble portfolio management.
Constructive Foundation
Economic fundamentals remain solid with GDP growth near 4%, corporate earnings expanding, and policy support in place.
Moderating Trajectory
Expect gradual deceleration toward trend growth as labor market softening and prior tightening impact spending.
Selectivity Required
Performance dispersion likely to increase, rewarding active management and penalizing indiscriminate risk-taking.
The base case scenario envisions continued economic expansion at a moderating pace. GDP growth is expected to gradually decelerate toward the 2-2.5% trend rate as the labor market normalizes and the lagged effects of prior monetary tightening work through interest-sensitive sectors.
Corporate earnings growth should remain positive, though it will likely decelerate from recent peaks. Technology and quality cyclicals are expected to continue to outperform, while margin-pressured sectors may face more challenging conditions.
The Federal Reserve will likely implement additional modest rate cuts through early 2026, though the pace and magnitude depend critically on inflation trajectory and labor market evolution.
Key Monitoring Points
  • Inflation persistence and Fed policy response
  • Labor market trajectory and wage dynamics
  • Corporate margin sustainability
  • Credit market stability and spread levels
  • Geopolitical developments and policy uncertainty
  • Technical market indicators and positioning
Alternative scenarios deserve consideration in risk management frameworks. An upside case, featuring stronger-than-expected growth, rapidly declining inflation, and aggressive Fed easing, could drive continued equity multiple expansion and credit spread tightening. However, valuations in many segments already reflect optimistic assumptions.
Conversely, a downside scenario involving inflation reacceleration, policy error, or financial stability concerns could trigger meaningful corrections in both equity and credit markets, with flight-to-quality dynamics benefiting high-quality government bonds.
Portfolio Positioning for Year-End:
  • Maintain constructive but selective equity exposure, emphasizing quality growth characteristics and structural themes.
  • Balance fixed income duration with a preference for credit over rates.
  • Preserve liquidity and flexibility for opportunistic deployment.
  • Implement risk management overlays appropriate to institutional mandates and client objectives.
The current environment rewards active management, rigorous fundamental analysis, and disciplined rebalancing rather than passive buy-and-hold approaches.
Success in the quarters ahead will require balancing conviction in high-probability scenarios with humility about forecast uncertainty. It also means maintaining discipline around valuation and risk parameters while remaining open to adjusting views as new information emerges.
Focus on multi-year investment horizons rather than reacting to inevitable near-term volatility. The combination of reasonable valuations in select segments, solid fundamental support from earnings and policy accommodation, and potential for positive surprises from productivity improvements argues for remaining invested while managing risk intelligently through diversification, hedging, and position sizing appropriate to evolving market conditions.