Hello Friends,
Can you believe it? We’re already into the fourth quarter — where has the year gone? Despite persistently negative headlines, stock markets around the world have rallied in 2025, even after a sharp downturn this spring.
Several strong themes have emerged this year: small-cap stocks led U.S. equities in Q3 after struggling early in the year when tariffs were announced; the technology sector continues to deliver impressive returns amid optimism around artificial intelligence; and international stocks are outperforming U.S. markets for the first time in many years.[1] Even bonds are joining the rally, as the Federal Reserve recently cut interest rates for the first time since late 2024.[2]
With all this good news, a natural question arises: When will the party stop? While we don’t have a crystal ball, our investment committee continues to meet regularly to review economic and market data and make strategy adjustments as appropriate. We don’t believe any major changes are necessary at this time, and we remain cautiously optimistic heading into 2026.
Don’t be surprised if we rebalance portfolios later this year or early next year to take some profits and reduce risk as we move into 2026 If you anticipate needing a larger distribution from your portfolio soon, now might be a good time to set that amount aside in cash. As always, please don’t hesitate to reach out if you’d like to discuss your specific situation.
What We Like About The Market & Economy:
- Corporate earnings outlook improving: The outlook for corporate earnings continues to improve after taking a step back this spring with the announcement of tariffs. The stock market is forward-looking and is reacting to better-than-expected news from quarterly earnings reports and forward guidance from U.S. companies.[3]
- Rising productivity: The U.S. economy is seeing a strong boost in productivity growth thanks to increased technology and the advancement of AI.[4]
- Easing monetary policy: The Federal Reserve recently cut interest rates in September and is forecasting more cuts later this year and into next year. Lower interest rates generally stimulate the economy.[5]
- Resilient consumer spending:S. consumer spending, the biggest driver of US GDP, continues to remain strong. While consumer sentiment surveys show consumers feeling less optimistic about the economy, retail sales and consumer spending numbers tell another story.[6]
What Concerns Us In The Market & Economy:
- Slower job growth: While the U.S. unemployment rate remains historically low, hiring has slowed dramatically this year. This has made it especially difficult for recent college grads and first-time job seekers to land a position.[7]
- Tariff uncertainty: The full impact of tariffs is unclear at this point and may have negative impacts on major aspects of the economy and stock market such as consumer spending levels and corporate profitability[8]
- Inflation risk: Inflation expectations remain elevated, and an uptick in inflation would likely be viewed negatively by markets.[9]
Recent Quotes & Stats We Find Interesting:
- “Historically, markets have shown no consistent pattern around government shutdowns. Over one-, three-, and six-month periods following past episodes, returns for stocks, gold, and the dollar have been mixed. The S&P 500 Index (SPX), however, has been the clear standout, posting the strongest average gains across all timeframes”[10]
- “In July, Nvidia NVDA became the first company in the world to reach a market capitalization of more than $4 trillion"[11]
- “In Q2, 79% of S&P 500 companies beat analyst estimates on revenues and more than 80% beat on earnings. Both of these measures are well above longer-run averages”[12]
- “The third year of a presidential cycle produces far and away the best returns (historically). The data shows that overall, the first, second and fourth years tend to produce fairly similar returns, with the first or second year posting the lowest average annual return”[13]
Thank you for your continued trust and support. Please don’t hesitate to reach out to us if you have any questions.
Sincerely,
Your PFA Investment Committee
[1] www.Morningstar.com
[2] www.FederalReserve.gov
[3] www.carsongroup.com
[4] www.clevelandfed.org
[5] www.marketwatch.com
[6] www.bloomberg.com
[7] www.wsj.com
[8] www.economictimes.com
[10] www.ftportfolios.com
[11] www.morningstar.com
[12] www.blackrock.com
[13] www.nasdaq.com