The third quarter of the financial year brought forth substantial gains across global markets, continuing a recovery trend initiated in the late spring. This resurgence was largely propelled by an invigorated sense of optimism regarding the future trajectory of monetary policy, consistently strong corporate earnings reports, and a prevailing positive sentiment among investors.
Detailed Market Analysis: Q3 2025 Performance and Outlook
In the third quarter of 2025, capital markets demonstrated considerable strength, driven by a confluence of factors including anticipated shifts in monetary policy, robust corporate financial results, and an overall buoyant investor mood. During this period, the small and mid-cap equity segments notably surpassed their large-cap counterparts. This outperformance was primarily attributable to expectations of declining interest rates and a heightened investor appetite for domestic cyclical businesses, signaling a positive shift in market dynamics.
Despite the broader market's solid performance, the Thornburg Small/Mid Cap Core Fund's I share class recorded a return of 2.53% in the third quarter of 2025, lagging the Russell 2500 Index by 647 basis points. Moving forward, the fund maintains a strategic focus on the larger end of the small and mid-cap spectrum, prioritizing companies characterized by high quality and strong fundamentals. This approach reflects a continued belief in the potential of these segments, even as the macroeconomic landscape evolves. The outlook for small and mid-cap equities remains optimistic, underpinned by their inherent growth potential and adaptability to changing market conditions. The Federal Reserve's long-anticipated actions on interest rates also played a pivotal role, reinforcing investor confidence.
This period underscores the market's sensitivity to macroeconomic indicators and policy decisions, highlighting the importance of strategic positioning within equity segments. The outperformance of small and mid-cap stocks against a backdrop of easing monetary policy hints at a re-evaluation of growth potential and a diversification of investment focus beyond traditional large-cap dominance. Investors might draw inspiration from the agility and growth opportunities presented by these smaller yet dynamic market segments.