SMID Strategy - September 2025
October 15, 2025
Equity market strength continued virtually unabated in Q3, supported by strong corporate earnings, rising expectations for a Federal Reserve rate cut (25 bp cut realized in September), and an increasing consensus that the massive AI investment boom will continue through at least 2026 without a slowdown. In a healthy indicator, market strength broadened out, as the small cap Russell 2000 Index expanded +12.4% as compared to the large cap S&P 500 +8.1%. A notable increase in corporate M&A activity was also evident, reflecting general confidence in the outlook for business activity. As for traditional market indicators, 2Q U.S. GDP growth was revised higher to a +3.8% annualized rate, with expectations for continued growth in Q3.
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