Nasty News? Forget About It. The Markets Say All Is Well.

Really, investors couldn’t have asked for better returns.

While President Donald Trump’s latest threat to impose steeper tariffs on Chinese goods set off a steep downturn Friday, the U.S. stock market had been fabulous for months. From stocks to bonds to commodities, nearly every major asset class had risen substantially since the start of the third quarter in July, both in the United States and in many regions of the world.

If you held mutual funds or exchange-traded funds — used by most investors in the United States — there’s a good chance that you shared in the gains in the three months through September. And there were new market highs early this past week.

This was an astonishing performance when you consider how bleak the news headlines have been.

Consider that President Donald Trump has been ordering the National Guard into cities governed by Democrats. At the same time, Democrats in Congress have been refusing to accept the cuts in Medicaid and Affordable Care Act subsidies imposed by congressional Republicans and the Trump administration. As a result, the U.S. government has been shut since Oct. 1.

The tariff wars could be escalating and U.S. relations with China, already tense, could easily deteriorate further. Deportations continue, the jobs market has weakened, and the Federal Reserve’s independence is under assault from the Trump administration. Mounting civil strife is evident in the United States on many fronts.

Despite all that, the markets in recent weeks had largely shrugged off the turmoil. Whether stocks, in particular, will generate strong returns in this time of stress is the question — one that no one can answer.

Friday’s decline aside, longer-term upward momentum has been formidable. The Federal Reserve has started to cut interest rates, and corporate earnings are strong. Hundreds of billions of dollars in capital expenditures on artificial intelligence infrastructure are lifting the entire AI industrial complex, with shareholders of companies like Nvidia, Arm, Broadcom, Intel, Taiwan Semiconductor, Microsoft, Oracle and Meta all benefiting. As the market rose, Wall Street analysts became increasingly bullish.

“We’re in a self-fulfilling rally,” Mark Hackett, chief of investment research at Nationwide, an insurance and financial services company, wrote Tuesday. “Earnings are strong and getting stronger, investors are shrugging off a lack of data, and even a government shutdown can’t shake their confidence.” He added, “The main story right now is momentum.”

No wonder Wall Street had been exuberant. The sky-is-the-limit stock market forecasts have been right, at least until Friday. One day, a bear market will start.

Politics and tariffs aside, the markets face internal issues. The stock rally lifted valuations to nosebleed heights, prompting widespread chatter about the dangers of an AI bubble. Gold and cryptocurrency soared along with more traditional investments in a rush of enthusiasm that may be based on shaky foundations.

For months, though, Wall Street partied.

Celebrated Returns

Quarterly returns were splendid for most investors, according to an analysis performed for The New York Times by financial research firm Morningstar.

For the three months through September, the average domestic general stock fund in the United States rose 6.2%, Morningstar found. The quarterly gain brought the average stock’s 12-month return up to 11.9%, despite losses in April, when Trump imposed the highest tariffs since the 1930s, sending markets spinning.

International stock funds did a bit better than domestic ones, with an average gain of 6.6%, and a return of 16.8% for 12 months.

These were great returns, but they weren’t as good as the performance of the markets themselves. That’s because actively managed funds tend to lag the markets, and the Morningstar tally includes all funds — actively managed ones as well as passive index funds that track global markets. I favor low-cost, broadly diversified index funds partly because they tend to outperform the average actively managed fund. That happened again in the last quarter.

For example, in the three months through September, the S&P 500 stock index returned 8.1% and the Russell 2000, which tracks smaller stocks, returned 12.4%, including dividends, according to FactSet.

Over 12 months, the index fund outperformance also held. In that period, the S&P 500 gained 17.6% and the Russell 2000 gained 10.8%, including reinvested dividends, according to FactSet. The Vanguard fund rose 17.4%, again much better than the average general domestic stock fund.

Bond fund returns were positive but unexceptional. The average taxable fund returned 2.2% for the quarter and 5% over 12 months, Morningstar said. For municipal bond funds, the parallel returns were 2.7% and 1.2%.

The Highlights

Here is a sampling of how stock funds available in the United States fared in various domestic and international categories over three months and 12 months through September, according to Morningstar:

• Technology stock funds: 13.2% for the quarter and 30.6% for 12 months.
• Balanced funds with 50% to 70% stock and the rest bonds: 4.9% for the quarter and 10.5% for 12 months.
• Target-date 2030 funds, which contain a mix of stocks and bonds and are aimed at people who plan to retire in five years: 4.6% for the quarter and 11.3% for the year.
• China region funds: 22.2% for the quarter and 29.7% for 12 months.
• India funds: Minus-7% for the quarter and minus-11.2% for the year. The tariff feud between Trump and Prime Minister Narendra Modi of India hurt the Indian stock market more than many others.
• Precious metal stock funds, which have been buoyed by the soaring price of gold: 41% for the quarter and 92.6% for 12 months.

The Takeaways

While most fund returns were welcome news for investors, the big question is, Where are markets going now? And, alas, no one knows.

Betting heavily on gold or cryptocurrency — or on any particular trend — isn’t a reliable approach. Instead, by holding broad index funds, I’ve got exposure to nearly everything in the market, for better and for worse.

As long as the United States doesn’t fall into a recession, it’s hard to resist a vigorous bull market. On the other hand, there are so many crises brewing domestically, and around the world, that it would be foolish to exclude the possibility that some undetermined event — maybe an escalation of the tariff wars — will precipitate a major downturn.

It’s easy to argue either way. An optimistic take would be that the enormous AI infrastructure investments already underway will create a revolution in productivity. Strong earnings might make already-high stock prices go higher.

A less sanguine view might be that vast sums of money are being wasted on a technology that won’t fulfill its backers’ dreams. Furthermore, stock prices were already so high they were bound to fall, and the Trump administration’s aggressive actions could damage the markets and the economy.

The last year’s returns can’t be sustained indefinitely, but it’s impossible to know if the tide is turning. So I’ve been rebalancing my holdings, returning to a risk level I’m comfortable with and bolstering my stash of safe money so that I’m prepared to withstand losses.

If you know you can’t afford to live through a major downturn, you may want to pare back some of your riskier bets while you’re still ahead. In that case, plow money into safe places like Treasurys, high-quality corporate and municipal bonds, certificates of deposit, money-market funds and high-yield savings accounts.

For those with the stomach for it, consider sticking around for what I expect will be a wild ride. Ultimately, market history suggests that it will lead to long-term gains.

This article originally appeared in The New York Times.