The S&P 500 added 6.4%, the Dow Jones advanced 4.2%, the Nasdaq advanced 9.9%, and the Russell 2000 gained 10.9% in the third quarter of 2025 (as of Sept. 25, 2025). Ebbing trade tensions boosted stocks in the third quarter, with the small caps grabbing special attention. Note that the Russell 2000 surged about 7% in August itself — its fourth consecutive monthly gain and strongest streak in over four years, as mentioned in a Yahoo Finance article.
U.S. Economy Giving Mixed Signals
While growth has been upbeat for the economy, the labor market started showing signs of weakness. Meanwhile, inflation remains steady.
Thanks to stronger consumer spending, the U.S. economy grew at an unexpectedly robust 3.8% pace in Q2 of 2025, marking an upward revision of second-quarter growth released by the government.
The Commerce Department said on Thursday that gross domestic product (GDP) bounced back in spring after a 0.6% decline in the first quarter, which had been hit hard by trade tensions. The new estimate is higher than the previously reported 3.3% growth (per AP news, as quoted on Yahoo Finance).
However, the U.S. economy added 22,000 jobs in August 2025, lower than an upwardly revised 79,000 in July and market forecasts of 75,000, as quoted on tradingeconomics. Jobs data for June was revised down by 27,000, and the change for July was revised up by 6,000.
The U.S. annual inflation rate grew to 2.9% in August 2025, the highest since January, after staying the same at 2.7% in both June and July, in line with market expectations, as quoted on tradingeconomics.
Fed Rate Cut to Address Weakening Labor Market
The Fed enacted its first rate cut of 2025 in September and hinted at further cuts this year.At the time of writing, there are 87.7% chances of a 25-bp rate cut in the October meeting, per the CME FedWatch Tool.
Moderate Comeback of Tariff Tensions
In a trio of posts on Truth Social on Sept. 25, 2025, President Trump announced that the U.S. will roll out a host of tariffs starting Oct. 1. The measures will cover imported kitchen cabinets, bathroom vanities, pharmaceutical products, and heavy trucks. Tariffs will range from 30% to 100%, though exemptions will apply to drugmakers currently building manufacturing plants in the United States, as quoted on Yahoo Finance.
AI Boom Stay Strong Despite Payoff Concerns
In Q3, we noticed several semiconductor and AI deals. NVIDIA announced deals with Intel, Open AI and Alibaba. However, some market watchers are analyzing that AI payoffs are lagging the pace of AI investments (read: Here’s Why Semiconductor ETFs Are Hitting 52-Week Highs).
Winning ETF Areas
Against this backdrop, below we highlight a few winning exchange-traded fund (ETF) areas of the third quarter of 2025.
Bitcoin Mining
CoinShares Bitcoin Mining ETF WGMI – Up 116.4%
Grayscale Bitcoin Miners ETF MNRS – Up 69.3%
Bitcoin prices have gained about 19% so far this year due to higher institutional and corporate adoption. President Trump’s announcement of creating a crypto reserve bodes well for cryptocurrency miners (read: 4 Top-Performing ETF Areas of First Nine Months of 2025).
Cannabis
Roundhill Cannabis ETF WEED – Up 91.8%
AdvisorShares Pure US Cannabis ETF MSOS – Up 84.5%
Cannabis stocks and ETFs soared in Q3 after reports that President Donald Trump gave hints of considering reclassifying marijuana to a less restrictive drug category. The likely move would shift marijuana from Schedule I, where it currently sits alongside heroin and cocaine, to Schedule III (as quoted on abcnews.com). This would be a beneficial step for the cannabis industry.
Rare Earth
VanEck Rare Earth/Strategic Me REMX- Up 67.6%
Rare earth is in high demand. Shares of Lithium Americas Inc. LAC jumped about 90% on Sept. 23 as Trump reportedly announced that the United States government would be taking about a 10% stake in the company (as quoted on Aljazeera.com). Rare earth is essential as these metals have usage in green energy, high-tech electronics and the defense sector. With China controlling the major share of global rare earth, economies are focusing on stockpiling. The U.S.-China trade tensions are also boosting the prices of rare earth.
Ethereum
Grayscale Ethereum Mini Trust ETF ETH – Up 60.9%
Bitwise Ethereum ETF ETHW – Up 60.8%
Ethereum prices jumped about 57% in the third quarter (as of Sept. 25, 2025). Strong institutional demand mainly led to the surge. Staking yields and Layer 2 scaling are the other factors that kept Ethereum prices high in August, as quoted on tradingnews.com.
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This article originally published on Zacks Investment Research (zacks.com).
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