Market Commentary - October 2025

We hope you had a very relaxing summer, and it’s hard to believe we are already entering into the 4th quarter. We acknowledge there has been an ever-widening range of outlooks and opinions based on what has transpired in the economy and markets. There are some who feel we are on the precipice of a recession in the U.S. given some of the economic data discussed below. There are others who suggest we are in the early stages of the growth cycle, based on an analysis of various leading indicators. Risk assets and economic data also continue to diverge, with markets marching to all-time highs while the economic data has been softening.

Economic Data & Leading vs. Lagging Indicators

As we highlighted in prior newsletters, we had anticipated some magnitude of slowing growth during the middle of the year. In the employment report released in September, U.S. employers added only 22,000 jobs, the unemployment rate ticked up to 4.3%, and prior job growth continues to be revised downward significantly.

It is crucial for investors to differentiate between the leading and lagging indicators and to understand how these impact future economic growth and markets. The effects of higher interest rates, attempts at fiscal austerity, and the implementation of tariffs earlier in the year take time to flow through and impact the economic data. Given the lagging nature of unemployment data, it was natural that we would experience some slowdown in hiring as the year progressed. Additionally, a decline in survey response rates, immigration policies, and developments in artificial intelligence have all served as headwinds to the labor market. However, the unemployment rate is only now at the low end of the Federal Reserve Board’s estimate for 2025.

If we shift our focus to the current leading and coincident indicators, we see the following:

• Initial and continuing jobless claims have remained steady over the past 12 months.

• Temporary help services and overtime hours are steadily increasing, which historically is indicative of an upcoming rebound as employers tend to utilize increase these workers prior to hiring additional full-time employees.

• New orders are now in expansionary territory.

• Earnings revisions for companies’ profits are accelerating materially higher.

• The US Citi Economic Surprise Index has been positive throughout the third quarter.

• Small business confidence is picking up.

Financial Conditions

Financial conditions have been steadily easing over the past few quarters, which tends to lead economic activity by approximately nine months. Further, 90% of central banks are in the middle of rate cutting cycles, with the U.S. Federal Reserve likely to cut interest rates two more times prior to year end. We also may experience an even higher fiscal impulse in 2026 given the lagged yet positive economic impact from continued deregulation efforts and recent tax cuts. By nature, markets will have periods of volatility and drawdowns. However, each of these items should help provide a buffer, and the contrarian view may be that growth moderately accelerates over the next several months.

Valuations

What about valuations? By any historical metric, equities are at or near peak valuations, although these have very little predictive power over what may transpire over even an intermediate time period. Increasing profit margins, continued fiscal spending, low leverage (household & corporates), expanding global liquidity, and a resilient economy could all keep valuations at elevated levels for an extended period. Standard corrections aside, any meaningful decline in equity valuations would likely need to be catalyzed by either 1) a monetary or fiscal tightening cycle and/or 2) an economic recession. The typical business cycle historically has followed the following timeline:

As previously highlighted, each of these leading indicators continues to be constructive and may indicate the current business rebounds and extends well into 2026.

Regardless of how the economic data and market activity evolves through the coming quarters, it remains critical to integrate your specific investment strategy into your overall financial plan. We continue to collaborate deeply with clients to plan around both the positive and negative tail risks in today’s environment.

Year-End Planning

The beginning of the 4th quarter is an ideal time to review your financial situation and address year-end financial planning actions. For some, this will be particularly important given the changes in the recently passed tax legislation. We continue to be proactive in identifying planning strategies throughout the year, and we have included a checklist of important items to consider:

• Retirement Contributions

  • Contribute to retirement accounts to maximize deductions and boost retirement savings.

• Capital Gains & Tax Loss Harvesting

  • Assess your investment gains and losses to determine the most tax-efficient approach for the year. Depending on your tax bracket, consider potential capital losses to offset gains and reduce your tax liability.

• Required Minimum Distributions ("RMDs")

  • If you're over 72 years old, ensure you've taken your required minimum distributions from retirement accounts to avoid penalties. It's also important to review any inherited retirement accounts for RMDs.

• Charitable Giving

  • Consider making charitable donations to qualified organizations to reduce your taxable income. Evaluate the most effective strategy for giving (low basis stock, qualified charitable distributions, donor advised funds, etc.)

• Health Insurance

  • Evaluate Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) for tax advantages.

• Gifting

  • Consider leveraging the annual gift tax exclusion ($19,000 per recipient in 2025) for tax-efficient wealth transfers.

• Tax Credits

  • Explore available tax credits for education expenses, energy-efficient home improvements, or dependent care.

• Deductions

  • Review all eligible deductions, including those for mortgage interest, state and local taxes, and medical expenses. The timing for deductions may become more important given the increase in the SALT deduction.

• Business Expenses

  • For business owners, consider prepaying certain expenses or making purchases that qualify for accelerated write-offs.

• Estate Planning

  • Review your estate plan, including wills and trusts, to ensure it aligns with your current wishes. Beneficiaries on retirement accounts and insurance policies should also be reviewed annually.

• Tax-Advantaged Accounts

  • Consider evaluating a Roth conversion strategy during years in which ordinary income may be low. Maximize contributions to tax-advantaged accounts like 529 for education savings.

We look forward to connecting with each of you in the coming months.

-        Jason, Micah, Tim, & Victoria