U.S. equities were higher once again in October. The S&P 500 rose by 2.3% for the month and is now 17.5% higher so far in 2025.
Economic data delays: We went through the entire month of October without government data (other than CPI). While this is manageable for now, it will become more problematic the longer it persists.
Q3 Earnings season is off to a good start. Full year operating earnings for the S&P 500 are expected to grow by over 10% this year and 17% next year, according to Standard and Poor’s.
Crosscurrents Driving Policy: The U.S. economy faces opposing forces: a gradually softening labor market and renewed inflationary pressures from recently enacted tariffs. These dynamics are likely to keep the Fed cautious as it balances growth and price stability.
As expected, the Federal Reserve cut rates at their October meeting, but rates across the curve moved higher following more hawkish remarks from Jerome Powell about the path for future rate cuts.
The U.S. 10 Year closed the month at 4.10%. After briefly falling below the 4% mark during the month, the yield on the 10 year is back within the 4.00%-4.50% we view as fair value.
Equity Markets
Despite a volatile policy backdrop, the U.S. economy continues to show resilience.
Thus far, the reintroduction of tariffs has proven less disruptive to corporations and has applied less upward pressure to inflation than markets initially feared. At the same time, interest rates have declined, and short-term yields are expected to continue falling in the year ahead—helping to ease financial conditions and support both corporate and consumer balance sheets. Corporate fundamentals remain a bright spot. Earnings have exceeded expectations this year, with aggregate S&P 500 profits projected to rise more than 10% in 2025 and 17% in 2026.
Companies continue to optimize SG&A costs and improve efficiency, enabling margin expansion even as hiring slows. This dynamic—stronger profits with fewer jobs—has contributed to a notable rise in productivity, a key driver of sustained economic growth.
Certain aspects of the policy environment have also been supportive. The recent tax bill, combined with continued regulatory rollbacks, has bolstered corporate confidence and encouraged new investment and expansion plans. Nowhere is this more evident than in the surge of AI-related capital expenditures. The “Magnificent Seven” are projected to invest over $350 billion in AI infrastructure and data centers this year, growing to $450 billion in 2026.
These investments are reshaping corporate balance sheets and real economy dynamics—contributing roughly 0.6 percentage points to the first half’s 1.6% GDP growth. Remarkably, investment in software and information processing equipment contributed as much to Q2 GDP growth as consumer spending did, highlighting a subtle shift in the drivers of U.S. economic momentum.
That said, several offsets temper the otherwise constructive outlook. Valuations remain stretched, with the S&P 500 trading around 23 times forward earnings—near levels last seen during the late-1990s tech bubble. Stripping out the mega-cap names, however, the equal- weighted S&P trades at a more reasonable 17.7x, roughly in line with its 10-year average. Meanwhile, lower-income households are struggling to keep pace with rising costs, and the federal deficit—while slightly smaller as a share of GDP—continues to expand the total debt load and interest burden. We’ll likely see some short- term economic impact from the U.S. government shutdown, and while the lack of official data is manageable for now, it will become increasingly problematic the longer it persists. Finally, the rapid pace of AI investment introduces its own risks; overinvestment or disappointing returns could prompt a reassessment of valuations and weigh on future growth.
Overall, while macro and earnings trends remain supportive, the balance between optimism and prudence is tightening. Investors may benefit from emphasizing quality, disciplined valuation frameworks, and diversification as the market digests both the tailwinds of innovation and the growing structural challenges ahead.
Holding Steady Through Shifting Currents
Holding Steady Through Shifting Currents
Performance Review & Outlook
Highlights
U.S. equities were higher once again in October. The S&P 500 rose by 2.3% for the month and is now 17.5% higher so far in 2025.
Economic data delays: We went through the entire month of October without government data (other than CPI). While this is manageable for now, it will become more problematic the longer it persists.
Q3 Earnings season is off to a good start. Full year operating earnings for the S&P 500 are expected to grow by over 10% this year and 17% next year, according to Standard and Poor’s.
Crosscurrents Driving Policy: The U.S. economy faces opposing forces: a gradually softening labor market and renewed inflationary pressures from recently enacted tariffs. These dynamics are likely to keep the Fed cautious as it balances growth and price stability.
As expected, the Federal Reserve cut rates at their October meeting, but rates across the curve moved higher following more hawkish remarks from Jerome Powell about the path for future rate cuts.
The U.S. 10 Year closed the month at 4.10%. After briefly falling below the 4% mark during the month, the yield on the 10 year is back within the 4.00%-4.50% we view as fair value.
Equity Markets
Despite a volatile policy backdrop, the U.S. economy continues to show resilience.
Thus far, the reintroduction of tariffs has proven less disruptive to corporations and has applied less upward pressure to inflation than markets initially feared. At the same time, interest rates have declined, and short-term yields are expected to continue falling in the year ahead—helping to ease financial conditions and support both corporate and consumer balance sheets. Corporate fundamentals remain a bright spot. Earnings have exceeded expectations this year, with aggregate S&P 500 profits projected to rise more than 10% in 2025 and 17% in 2026.
Companies continue to optimize SG&A costs and improve efficiency, enabling margin expansion even as hiring slows. This dynamic—stronger profits with fewer jobs—has contributed to a notable rise in productivity, a key driver of sustained economic growth.
Certain aspects of the policy environment have also been supportive. The recent tax bill, combined with continued regulatory rollbacks, has bolstered corporate confidence and encouraged new investment and expansion plans. Nowhere is this more evident than in the surge of AI-related capital expenditures. The “Magnificent Seven” are projected to invest over $350 billion in AI infrastructure and data centers this year, growing to $450 billion in 2026.
These investments are reshaping corporate balance sheets and real economy dynamics—contributing roughly 0.6 percentage points to the first half’s 1.6% GDP growth. Remarkably, investment in software and information processing equipment contributed as much to Q2 GDP growth as consumer spending did, highlighting a subtle shift in the drivers of U.S. economic momentum.
That said, several offsets temper the otherwise constructive outlook. Valuations remain stretched, with the S&P 500 trading around 23 times forward earnings—near levels last seen during the late-1990s tech bubble. Stripping out the mega-cap names, however, the equal- weighted S&P trades at a more reasonable 17.7x, roughly in line with its 10-year average. Meanwhile, lower-income households are struggling to keep pace with rising costs, and the federal deficit—while slightly smaller as a share of GDP—continues to expand the total debt load and interest burden. We’ll likely see some short- term economic impact from the U.S. government shutdown, and while the lack of official data is manageable for now, it will become increasingly problematic the longer it persists. Finally, the rapid pace of AI investment introduces its own risks; overinvestment or disappointing returns could prompt a reassessment of valuations and weigh on future growth.
Overall, while macro and earnings trends remain supportive, the balance between optimism and prudence is tightening. Investors may benefit from emphasizing quality, disciplined valuation frameworks, and diversification as the market digests both the tailwinds of innovation and the growing structural challenges ahead.
Dreams are important.
Aspirations are what help make goals reality.