Fall 2025 Commentary

For the quarter ending September 30, 2025, U.S. stocks rose with the S&P 500 gaining 8.1%. International stocks rallied, with the MSCI EAFE climbing 4.8%. Bonds also rose, with the Bloomberg Barclays Aggregate Bond Index gaining 2.0%.

Market gains accelerated in the third quarter with the S&P 500 returning 8.1%, adding to gains in the first half. For the year, the large cap index has risen 14.8%, despite a significant pullback in April in response to President Trump’s tariff announcements. International stocks also continued their strong year with the MSCI EAFE advancing 4.8% for the quarter and 25.1% so far for the year. Bonds have also contributed with the Bloomberg Barclay’s Aggregate Bond Index returning 6.1% this year. In just about every category, it has been a good year so far for investors.

^{*This graph is not intended to recommend any investment or investment activity.}

The end of the quarter marks the three‐year anniversary of the end of the most recent, albeit brief, bear market which occurred in 2022. The total return for the S&P 500 over this three year span has been nearly 95%, or just shy of 25% per year. The quarter ended with all three major U.S. Stock indexes (S&P 500, Dow Jones Industrial, and NASDAQ) reaching all‐time highs. By almost every measure, this has been a very impressive three year run for the U.S. stock market.

The primary leaders in the market during this time (and by a wide margin) have been the mega‐sized technology companies dubbed the “Magnificent Seven,” or “Mag 7.” As the nearby chart shows, these seven stocks have outperformed the broader S&P 500 index since the market pullback in 2022 and have been responsible for more than half of the overall gain for the index during this time. That has made the market very top‐heavy, with the Mag 7 now making up roughly 34% of the S&P 500, with the other 493 stocks making up the remaining 66%.

_{*This graph is not intended to recommend any investment or investment activity. Source: JPMorgan}

The dominance of the Mag 7 has much to do with the emergence of Artificial Intelligence (AI) and the rapid building of the infrastructure to support this revolutionary technology. But like the internet bubble of the late‐90’s, valuations for these stocks have risen to sky-high levels, leaving the overall market vulnerable to a swift and unexpected pullback.

Outside of the U.S., international stocks have emerged this year from their extended period of underperformance to their U.S. counterparts. So far this year, the MSCI EAFE, which measures the performance of large international stocks, has outperformed the S&P 500 by more than 10%, returning 25.1% versus 14.8% for the S&P 500. Strong earnings abroad have been a primary driver of the strong performance in the international stock market, but the weakening U.S. dollar has also contributed to returns. This trend should continue as the Fed is expected to continue lowering rates into next year, while most developed country central banks are expected to hold their rates higher. Higher relative yields abroad typically attract cash deposits away from the U.S. as global investors hunt for higher cash yields.

Closer to home, as of this writing, we find ourselves in the midst of yet another government shutdown. This is the fourth shutdown in the last eight years. As has been the case in the past, the market appears to be to be mostly ignoring the shutdown, at least for now. The longer‐term impact on the economy remains to be seen and will depend largely on the duration of the shutdown. At the center of the conflict are cuts to healthcare benefits in the recently passed “One Big Beautiful Bill Act,” or OBBBA. As in the past, we expect the shutdown to eventually end and for the government to go back to business as usual, hopefully without too much disruption to the overall economy.

A consequence of the government shutdown in the near‐term will be a delay in reporting current economic figures, such as employment and GDP growth. This makes the Federal Reserve’s job more difficult as they will lack clarity on the direction of the economy. This comes as they face political pressure from President Trump to lower interest rates, while also trying to ward off a potential bout of inflation that may result from the recently implemented tariffs. Most expect the Fed to lower rates two more times this year, and then three times next year. That would bring the benchmark lending rate to around 3%, which most consider to be “neutral,” or neither restrictive or stimulative.

As mentioned in recent commentaries, a significant source of uncertainty in the economy is the potential impact of the extreme tariff policies implemented by President Trump. Currently, the average tariff cost for imported goods has risen to about 19%, far higher than the 2‐3% charged the past two decades, and the highest tariff rate in nearly a century. For now, it appears that many businesses have chosen to absorb the cost of the tariffs rather than pass these additional costs along to their customers. This is not expected to continue as businesses begin to adjust pricing to protect their profit margins.

In response to lower rates from the Fed, the bond market has rallied this year. The 10‐year U.S. Treasury yield has declined from 4.6% at the beginning of the year to 4.2% at the end of the quarter. Mortgage rates have also declined from 6.9% for a 30‐year fixed mortgage at the beginning of the year to 6.2%, providing some relief to home buyers.

Many expect the economy to soften in the fourth quarter. Some strategists believe GDP growth may drop to 0%, or even negative, as the labor market has weakened and tariffs begin to show their effects. The University of Michigan Consumer Sentiment Index has weakened to 55 from 74 at the beginning of the year and remains well below the long‐term average of 84. Many companies have placed hiring and capital spending plans on hold as they wait for policy matters to settle down. Further, the government shutdown could lead to further disruptions and job losses. However, the first half of next year is expected to see growth pick back up as the benefits of the tax cuts in the OBBBA begin to take effect.

Between major domestic policy changes, trade wars, and geopolitical conflicts, there is a great deal of uncertainty in the markets. But as of this writing, most stock indexes are close to their all‐time highs, powered primarily by the massive capital spending in the development of the AI technology revolution. For the remainder of the year, we expect we expect the overall economy to slow, but that market gains should continue into the new year.

Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we would be pleased to speak with them to see if we can assist.