October 2025 Investment Review & Outlook (Video)
Transcript
Ben Hockema:
Welcome to our Investment Review and Outlook. Today we’re talking about the third-quarter update—how markets have performed so far this year, what headlines are shaping the investment landscape, and reasons to be both cautious and optimistic as we look ahead.
Q3 Performance
From July 1 through September 30, the top performer was gold, up nearly 16% for the quarter. Small-cap U.S. stocks followed closely, up 11%, marking a shift from earlier in the year. Other notable performers included the S&P 500, NASDAQ, and international markets. Bonds also delivered positive returns as interest rates fell, lifting bond prices.
Zooming out to year-to-date performance, gold remained the standout, up almost 47% through September 30. Developed international markets gained 27%, and emerging markets rose 24%. Even bonds were up around 6%. Overall, 2025 has been a strong year across nearly every asset class.
Key Headlines
As of mid-October, the U.S. government shutdown continues—lasting longer than average. Historically, markets tend to be flat during shutdowns, so I’m not overly concerned about its short-term investment impact.
The broader context remains encouraging: the S&P 500, gold, and even Bitcoin are near all-time highs. That’s a good headline for investors, though we should always look beyond the numbers to understand what’s driving them.
International Market Performance
International stocks have outperformed U.S. stocks this year, driven partly by a weaker U.S. dollar, which has fallen about 10%. But local performance has also been strong—companies abroad are earning real profits, not just benefiting from currency shifts.
This suggests that global diversification continues to play an important role in portfolios. Even if the dollar stabilizes, local company strength supports continued growth internationally.
Reasons to Be Cautious
Let’s start with the potential challenges.
1. Tariffs:
Tariffs are beginning to impact the economy, increasing costs for consumers and potentially reducing corporate profit margins. This could be a mild drag on growth.
2. Labor Market Weakness:
We’re seeing signs of a softening labor market—unemployment is rising slightly and job openings are slowing. While we’re not in a recessionary environment, this trend bears watching.
3. Valuations and Earnings:
U.S. equity valuations remain high, meaning companies must continue growing earnings to justify current prices. While earnings have exceeded expectations recently, any slowdown could pressure markets.
4. National Debt:
U.S. debt levels continue to climb. It doesn’t always matter immediately—but eventually, it will. The timing and implications remain uncertain, but it’s an ongoing concern.
Reasons to Be Optimistic
Despite the risks, there are compelling reasons to stay positive.
1. Low Consumer Sentiment = Opportunity
Investor and consumer sentiment remains low. Historically, that’s been a bullish indicator—markets tend to perform well when investors are cautious. When everyone is optimistic, that’s usually when risk rises.
2. Record Corporate Profits
S&P 500 earnings are at record highs. Companies are making more money than ever, and profits continue to trend upward. Strong corporate earnings are the foundation for long-term stock market growth.
3. All-Time Highs Are Not a Bad Thing
Many investors worry about “buying at the top.” But historically, even when investing at all-time highs, average returns one year later are around 11%, and about 10% per year over five years. The data suggests staying invested works over time.
4. Recent Market Corrections Have Cleared the Path
We’ve actually had three major corrections since 2020—each dropping 15–20%. Investors who stayed the course have earned today’s strong returns. Volatility is part of the deal, and it’s been well-rewarded.
5. The Federal Reserve Is Shifting Toward Rate Cuts
The Fed is now moving from a restrictive stance to a more neutral one. As rates decline, borrowing becomes cheaper—especially benefiting small-cap stocks and other rate-sensitive investments.
6. Small-Cap Breakout Potential
For the first time in years, small-cap earnings growth expectations are outpacing large-cap. If this trend holds, small-caps could be a significant driver of portfolio growth heading into 2026.
Final Thoughts
Even with uncertainty around the economy, labor market, and government policy, the data continues to support a long-term positive view. Staying invested—especially with a diversified portfolio—remains the best way to capture future gains.
If you’d like to discuss how these insights apply to your specific situation or review your investment strategy, please reach out. We’re always happy to help you make sense of the markets and align your portfolio with your goals.
