Market Commentary – October 2025

Conflicting Signals as the Year Winds Down 

The third quarter of 2025 was another reminder that markets rarely move in a straight line. Investors faced both optimism and concern, with record stock prices on the one hand and clear signs of labor market weakness on the other. The Federal Reserve resumed cutting interest rates in September, inflation remains stubbornly above its target, and political developments in Washington continue to dominate headlines.

These conflicting signals can feel unsettling. History teaches us that investors benefit most not by reacting to every short-term data point but by maintaining discipline, diversification, and patience. As we enter the final quarter of the year, markets are at all-time highs, corporate earnings are strong, and the economy continues to grow. At the same time, valuations are stretched, and structural issues in the job market remain unresolved. While the term “all-time high” can frighten investors, it’s also important to note that bull markets, by definition, progress through many new highs or benchmarks and can take years to reach a short-term top. The chart below shows that as of the end of the third quarter, the S&P 500 reached an all-time high 28 times. 

Government Shutdown: More Noise than Signal 

The government shutdown is one example of an event that garners headlines but has historically had little long-term impact on markets or the economy. Since 1976, there have been more than 20 shutdowns, lasting an average of nine days. The S&P 500’s average one-month return following these episodes has actually been positive at roughly +1.2%. 

As I wrote about earlier in the week, this does not mean markets can’t be volatile during shutdowns, but it does highlight that policy drama in Washington tends to fade quickly in the bigger picture of economic growth and corporate profits.  

Unlike past cycles when cuts followed recessions or financial crises, today’s environment is unique. The economy continues to grow at a healthy pace, but job creation has slowed considerably. Lower rates will provide some relief to consumers, particularly in areas like mortgages and auto loans, which could help offset inflationary pressures for lower-income households. 

Fed independence has also been a topic of debate, as the central bank faces political pressure from the current administration. While such headlines create uncertainty, the Fed’s credibility over the long run depends on its ability to balance inflation and growth without appearing politically driven. 

The Labor Market: Signs of Structural Strain 

It’s worth noting that job creation has been weaker than forecasted so far this year. The unemployment rate now stands at 4.3%, which is still low by historical standards. Economists typically consider an employment rate under 5% to be healthy. More concerning is the annual revision to payrolls, which reduced job growth by 911,000 — the largest downward adjustment in history. 

While job creation is falling short of expectations, some of this may be due to businesses hesitating to hire in an uncertain environment. There is currently one open job for each unemployed individual, suggesting that the problem is less about availability and more about mismatches in geography and skill sets. The chart below highlights the recent return to parity between the number of job seekers and jobs available. 

At the same time, productivity has improved. GDP is growing even as employment growth slows, which may reflect companies adopting new technologies, including artificial intelligence, to do more with fewer workers. 

Corporate Earnings: Supporting Record Highs 

With stock markets at record levels, many investors are understandably asking whether this feels like 1999 all over again. Valuations are well above long-term averages, and the S&P 500’s Shiller P/E ratio is approaching levels last seen during the dot-com bubble. 

The key difference today is that earnings are supporting prices unlike what we saw 25 years ago. Roughly 90% of S&P 500 companies have reported positive three-month changes in both revenue and earnings per share, showing broad-based corporate strength. According to Yardeni Research, Technology and Communication Services companies now account for 44% of the S&P’s total market value but also contribute 37% of total earnings. During the tech bubble, by contrast, those sectors represented 40% of market value but only 23% of profits. The gap between prices and fundamentals is much narrower today. 

This doesn’t mean markets can’t correct, in fact they almost certainly will at some point. But unlike 25 years ago, many of today’s leading companies generate real profits and are integral to both our personal and professional lives.

Technology and Digital Assets: Transformative but Uneven 

During the quarter, members of our team attended The Future Proof Festival, an industry conference that has become the premiere gathering spot for the sharpest minds in finance and technology.  

One key takeaway from the four-day event is that blockchain adoption is expected to increase, even as some cryptocurrencies remain speculative. The passage of the Genius Act in 2025 is an important milestone, establishing regulatory oversight of digital assets and, in particular, stablecoins. By reducing the “wild west” perception of the space, this legislation may help digital assets develop in a more structured and reliable way. 

The pace of innovation is extraordinary, and the largest companies are consolidating tools that can make workers more efficient across industries. This technological adoption helps explain rising productivity despite weaker job growth. 

Economic Growth: Resilient Despite Risks 

Despite softer labor data, overall economic growth remains robust. Second quarter GDP was revised up from 3.3% to 3.8%, largely due to stronger consumer spending. 3rd quarter growth is currently tracking at 3.9% according to the Atlanta Fed’s GDPNow model, driven by business investment and exports.

Consumer spending has been revised higher as well, from 1.6% to 2.5% in Q2, showing that households continue to earn and spend despite inflation. Tariffs have added some cost pressures to consumer goods, but their impact on overall inflation has been modest so far. Offsetting goods inflation is a drop in the cost of services such as travel and dining out. With inflation above the Fed’s 2% target but below the long-term average of 3%, the U.S. economy is still navigating a path of expansion. 

Staying and Monitoring the Course 

For investors, the third quarter of 2025 highlights the importance of perspective. Markets are at all-time highs, earnings are strong, and the economy continues to expand. At the same time, valuations are elevated, the job market is weaker than previously thought, and the Fed faces a difficult balancing act.  Risk and opportunity are always present.   

The labor market has been demonstrating demographic and structural challenges for years.  Our view is that innovative technology will continue to play a critical role in completing tasks and filling positions occupied by a human years ago.  We are monitoring how these impact businesses and ultimately portfolios.  

Financial Technology (“Fintech”) companies seemingly sprout up each week and will impact how money is transferred or invested.  The adoption rate of digital assets is rising and recent legislation may help us determine the increasing risk or relative safety of this asset class.   

Markets have always advanced through a series of challenges.  As we move into the final quarter of the year, we encourage investors to stay focused on the big picture. Market highs and corrections are both part of the journey. What matters most for investors is not predicting every twist and turn but maintaining portfolios that are aligned with long-term goals, resilient in the face of volatility, and diversified across asset classes.   

As always, thank you for your trust. 

Chris Proctor, CIMA® 

Chief Investment Officer