Current Outlook & Portfolio Strategy
Posted on October 2, 2025
As we enter the final quarter of 2025, while U.S. markets have registered another solid performance year, the tenor, trajectory, and narratives have been decidedly different from the preceding two years of this bull market, which dates to October 2022.
Yes, artificial intelligence, on any given day, can still drive the market to new highs, although the headlines in this arena continue to be dominated by announcements of continued elevated spending and investments, rather than by reports of returns on those investments. As an example, Oracle shares advanced 36% in a single day following its report of explosive acceleration in its cloud infrastructure revenues, based largely on a 5 year/$300 Billion contract with OpenAI, a firm currently with just $13 billion in sales.
But without question, the most consequential—and controversial—market driver this year has been geopolitics, particularly the US’s evolving trade policy. Just as relevant, is the unknown knock-on impact to consumers, corporations, and the economy.
This uncertainty is also the driver of recent Federal Reserve action. Cuts to short-term interest rates at the Fed’s September 17th meeting were predicated on a growing concern over a labor market that has softened significantly, driven to some degree by the uneven trade and economic climate. The Fed has temporary freedom to pivot to this side of its dual mandate, as inflation has been surprisingly sanguine so far, “only” 3.1% in the most recent core CPI reading. Whether this will be a durable outcome is the key question confronting both debt and equity markets.
The recent alarm over a growth deceleration arose on August 1 with the release of July’s payroll numbers, as well as the revision axe taken to prior months’ figures. This was further reinforced in the August payroll numbers of just 22,000, bringing the 4-month average to an anemic 27K/month. When taken with first half GDP of just 1.2%, growth may for now be the more immediate concern. The market is pinning its hopes, and elevated valuation, on a series of rate cuts to spur demand-side growth, while many supply-side headwinds abound.
Under the hood within equity markets, the third quarter of 2025 extended the rebound that began in April after the administration’s deferral of tariff implementation, rising more than 7% during the quarter. Technology and communications once again outperformed, riding strong demand for AI, semiconductors, cloud adoption, and an increasing sense that tech bellwethers (notably Apple, Nvidia) would escape the most punitive trade measures.
Industrials and materials also gained traction as infrastructure spend and global trade stabilized. Defense contractors on both sides of the Atlantic are positioned, and priced, for robust multi-year demand cycles, as NATO has committed to spending a previously mocked 5% of GDP on defense by 2035.
Consumer discretionary stocks saw selective strength in travel, autos, and leisure, supported by resilient household demand. Health care continues to lag and is mired in historically low valuations, and sentiment, amid a flurry of regulatory shifts in Washington. Energy remains pressured by range-bound oil prices and OPEC’s recent quota increases.
One lesson from the tumultuous year to date is that the eventual reality has not been as bad as the initial headline—but also, it’s not over. Looming by year-end are implications of a government shutdown, a Supreme Court ruling on the legality of executive-branch tariffs, and more clarity on the U.S.’s inflation and growth trajectories.
So there is quite a lot of runway left, and we believe our long-term, fundamental-driven approach to asset allocation and security selection will serve portfolios well, in what is still a very uncertain, and expensive, market landscape.
Kristian R. Jhamb, MBA, CFA
Chief Investment Officer
Logan Webb, CFA, CFP®
Portfolio Management
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