Summary and Implications - Q3 2025
The U.S. economy remains resilient, but labor market conditions are softening enough to prompt the Federal Reserve to begin cutting interest rates. The risk of an enduring recession remains at low probability levels. Global markets are enjoying a continued surge in risk appetite, especially for AI-fueled technology plays.
Overseas cyclical tailwinds and AI-driven productivity gains will likely continue supporting long-term corporate profitability and economic growth while slowing labor market conditions should help reduce interest rate volatility and support business borrowing.
Long-term investors should remain neutral on equity positioning with a preference for high quality U.S. stocks with strong balance sheets and reasonable valuations. We would likely need to see a broadening in market breath outside of the narrow leadership of Mag7 and speculative high beta technology stocks for the bull run to continue. Hard assets like real estate and natural resources can still provide inflation protection.
Fixed income remains attractive from a real yield standpoint. Investors still have an opportunity to lock in moderately high real rates by extending the maturity profile of their fixed income allocation, although maturities could be scaled back with the decline in real rates.
Investment Summary and Outlook
For the 3rd quarter of 2025, global stocks continued their rallies following the initial Liberation Day sell-off in early April. Investors are looking past tariff policy risk as the Trump Administration has negotiated trade agreement frameworks with key partners and/or extended moratoriums on reciprocal tariffs. A looming Supreme Court decision on the legality of the International Emergency Economic Powers Act (IEEPA 1977) framework used to justify reciprocal tariffs is expected in November with the expectation that the Trump Administration would resort to Section 232 (1962 Trade Expansion Act) to impose tariffs on national security grounds (narrower in scope), which has already been imposed on steel, copper, aluminum, autos, select consumer goods. Should SCOTUS rule against the Trump administration, then current trade policy frameworks negotiated under IEEPA could be invalidated and collected tariff revenue would likely need to be refunded as well as disrupting supply chains that have been rerouted to minimize the tariff impacts. Per Bloomberg, the current U.S. effective rate is 9.75% with east Asia (mostly China) bearing the brunt of higher tariffs.
Click here to read the full Q3 2025 Quarterly Commentary
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