BY STRATEGIC ADVISERS INVESTMENT TEAM — October, 2025
Market Conditions
Annual earnings growth for the S&P 500 Index hit double-digits for the third consecutive quarter, driving stocks higher.1 However, the Bureau of Labor Statistics significantly dropped its original estimate of new job creation. While job growth was still positive, the slower pace of hiring likely led the U.S. Federal Reserve (the Fed) to cut its target interest rate to support further economic growth.2
- Inflation readings were mixed: Measures ticked up for consumer prices while producer prices were lower. However, the impact of tariffs on inflation may be starting to show as core goods inflation has started to rise.3
- Hiring remained sluggish in August: 22,000 jobs were added for the month, which was below expectations, but still positive growth.4 Additionally, continuing jobless claims have fallen below their 3-month average. This may mean that unemployed people are finding more jobs, albeit at a slow pace.5
- Average household income reached an all-time high:Higher household incomes may support continued consumer spending, which can help drive the U.S. economy.6 Consumer spending is the backbone of the U.S. economy, representing nearly 70% of economic growth.7
What it may mean for your portfolio
Second quarter earnings growth was positive for U.S. stocks, and many companies raised their outlook for the rest of the year. This trend of rising earnings has contributed to the performance of stocks this year, despite a range of investor questions and concerns.
While the U.S. economy has grown at a healthy pace so far this year, the job market is showing signs of softening. Initial jobless claims, which measure layoffs, have ticked higher over the last few weeks, however, they remain well below their long-term average. While job growth has been slower, the economy is still creating jobs.
Partly in response to this jobs backdrop, the Fed cut its overnight lending rate at its September meeting and suggested it may cut interest rates later in the year as well. Lower interest rates are a tool that the Fed can use to support the U.S. economy. If borrowing costs fall on auto loans, credit card debt, and business loans, this may support further growth.8
Historically, when the Fed has cut rates during times of economic expansion, it has typically supported rising U.S. stocks. For example, the Fed cut rates from September through December 2024, even as the economy was expanding. Since then, stocks have experienced double digit gains so far this year.
Two other watch areas are the current government shutdown, which went into effect on October 1, and the evolving tariff backdrop.
In the past, most government shutdowns have lasted just a few days before a spending bill is passed. These instances have not had much impact on the economy in the past. However, prolonged shutdowns can potentially weigh on economic growth, but those have been rare.
As for tariffs, the U.S. supreme court will review the legality of many of the tariffs that are currently in place. Depending on their ruling, some tariffs may get curtailed, but the administration could find other ways of raising tariffs. As a result, a court ruling is unlikely to mean an end to all tariffs.
We will seek to closely monitor and research developments in the coming weeks and months with both scenarios. Based on our research, we may adjust client portfolios to help manage risk and seek out opportunities if either one impacts the outlook for economic or earnings growth.
Outlook
We believe the U.S. economy is still growing, but the pace of growth may be more moderate. Interest rate cuts by the Fed could potentially influence economic conditions. Over the coming months, news headlines around uncertainty on growth may lead to bouts of market volatility. However, if the economy continues to grow and corporate profits rise, it could potentially lead to further gains in stocks. Within well-diversified client portfolios, we have sought to diversify their investments beyond just traditional stocks and bonds. These include areas like high-yield bonds, commodities, alternatives, real estate stocks and TIPS. We believe this diversification may help cushion some of the impact from bouts of market volatility.
As always, we are closely following and researching developments on the economy, earnings, and policy changes, as well as geopolitical events around the world. We believe the risks of imminent recession are low. However, we are prepared to act as the situation evolves.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied even as news headlines may have felt discouraging. We aim to guide clients through market conditions, including those that have seen strong performance in the past two years. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that staying invested through varying market conditions can ultimately help you reach your financial goals over the long term.
