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The third quarter proved to be the best quarter of the year for U.S. stocks as all of the major indexes reached all-time highs.

Small cap stocks were the best performers, as the Russell 2000 index surged 12.4% in the third quarter. The small cap resurgence was likely due to the expectation, and later reality, of interest rate cuts. Small caps are generally seen as one of the leading beneficiaries of rate cuts as they lower the cost of borrowing, which helps small companies that don’t have a lot of capital. Small caps are also cheap compared to large caps, so investors went looking for better values.

The Russell 2000 also hit an all-time high in Q3. That happened on September 18 when the index closed at 2,467. The previous closing high was set in November of 2021. After the Q3 surge, the Russell 2000 is now up 9.7% year-to-date.

While small caps narrowly beat large caps, growth handily beat value. The Russell 1000 Growth Index increased 10.5% in Q3 while the Russell 1000 Value Index climbed 5.3%.

“This trend was driven by strong performances from stocks in the technology, communication services, and consumer discretionary sectors,” Jeff Buchbinder, chief equity strategist for LPL Financial, said. “The preference for growth over value continues, with investors piling into stocks investing heavily in AI infrastructure and its capabilities.”

All major indexes hit all-time highs

The Russell 2000 was not alone in setting a record, as all the major U.S. indexes hit new highs.

The Nasdaq Composite had a strong quarter, rising 11.2% in Q3 to finish at 22,660. About half of that gain came in September when the Nasdaq rose 5.6%.

The Nasdaq Composite hit an all-time closing high of 22,788 on September 22. It has since dropped from there a bit. Year-to-date, the Nasdaq is up 18.2%.

The S&P 500 soared 7.8% in the third quarter, closing Q3 at 6,688, with its gains fueled by exceptional corporate earnings.

S&P 500 constituents reported second quarter earnings that came in higher than expected, with earnings growth of 11.7%, marking the third consecutive quarter of double-digit earnings growth,” Buchbinder said. “Of the 500 S&P constituents, more than 400, or 81%, reported actual earnings per share that beat consensus EPS — the highest number since Q3 2023.”

The S&P 500 set an all-time closing high of 6,693 on September 22, but it has since topped that. On October 1, the S&P 500 hit 6,711 and on October 2 reached 6,734 during the trading day. The S&P 500 is up 14.2% YTD.

Finally, the Dow Jones Industrial Average returned 5.2% in Q3, marking its best quarter of 2025. The blue chip index closed the quarter out with a record high of 46,397 on September 30, but since then it has gone up.

On October 1 it set a closing record of 46,441, and on October 2 it was higher still, trading at a high of 46,580. The Dow is up 9.4% YTD.

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