A rising tide lifts all boats is an aphorism that held broadly true for equities this past quarter, although some boats are riding higher on the waves than others. From Memorial Day to Labor Day, the S&P 500 climbed steadily to post its third-best summer performance in nearly four decades. The expected Federal rate cut, coupled with strength in corporate earnings and solid economic growth, fueled investor optimism. With markets continuing to breach all-time highs, investors are naturally questioning whether fundamentals support this momentum, or if events will transpire to warrant a pullback.
Staging remarkable recoveries from a steep market pullback in April, both the S&P 500 and the Dow Jones Industrial Average (DJIA) are setting records. The S&P 500 closed on September 30th at 6,688 representing a return of 8.12% for the third quarter, and 14.83% for the first nine months of 2025. The more defensive DJIA ended September at a record high of 46,398 for a return of 5.67% in the past three months and has returned 10.47% for the year to date. The S&P 500 hit an astounding 23 record highs during the quarter, the highest quarterly number since 1998. The latest closing high was on September 22nd when the index hit 6,694.
Exuberance over Technology and AI looms large in the narrative, and Large Cap Growth has proved the leading strategy so far this year. This is evidenced by the outperformance of the S&P 500 over the DJIA. The composite of six mega-cap tech stocks, dubbed MAGMAN, was up around 12% for the quarter going into the last trading days. Communication Services, Information Technology, and Industrials are leading the way for the first nine months of 2025, while Healthcare, Real Estate and Consumer Staples are trailing at the bottom.
Although the valuations for some of the largest tech names are heady, and far outside the realm of any ‘value’ label, we should note that since the start of the current bull market in October 2022, the earnings growth for these names has far outpaced the market. This helps ease concerns that index gains, which are skewed by the performance of these dominant companies, are inflated by a vapor-filled bubble akin to the exuberance before the fall in 2000.
Ex-MAGMAN earnings growth is forecast to be robust in 2026, at around 13%, helped by new provisions from the ‘Big, Beautiful’ Tax Bill that allow for the accelerated amortization of R&D expenditure. We hope to see this translate into broader participation in market gains, helped by investors looking to diversify and seek more reasonable valuations. Recent data has shown that the U.S. economy expanded at a more elevated rate in the second quarter of 2025 than initially estimated, with the Commerce Department reporting Gross Domestic Product (GDP) rose at a 3.8% annualized rate, the fastest pace since late 2023. This was in part due to a narrower trade gap as import flows slowed. Tariff uncertainties remain, which could exert a longer-term drag on businesses with less nimble supply chains or those unable to absorb rising costs rather than passing them on to the consumer.
The Federal Reserve announced at its September 16th meeting that it was lowering its benchmark interest rate by 0.25% or 25 bps (basis points), to a range of 4.00 – 4.25%. This is the first cut under the new U.S. administration, and the consensus forecast is that more cuts are imminent, beginning later this year. The rate is now 1.25% below the July 2023 peak that held steady for 14 months.
The Federal Reserve operates under a dual mandate to foster economic conditions that achieve both stable prices and maximum sustainable employment. And despite concerns surrounding lingering inflation, Fed Chair Jerome Powell pointed to elevated downside risks in the labor market as a deciding factor for the cut. He characterized the environment as one of “low hiring and low firing.”
The decision was not unanimous. Fed Governor Stephen Miran, a President Trump nominee sworn in on the eve of the Fed September meeting, dissented, advocating for a larger, half-point rate cut. Donald Trump, along with his Treasury Secretary, Scott Bessent, has been vocal in calling for swifter and larger downside moves to further boost the economy and tackle housing affordability.
Mr. Bessent argues that downward revisions to job data show that the Fed’s easing actions are lagging and fall short. He believes the benchmark interest rate should be around 125 to 150 basis points lower than the current level.
Rising debt both at the government level and in the economy at large render interest costs a critical issue. According to Congress documents, at the start of September 2025, total federal debt of $37.4 trillion (or around $110,000 for every American) was about 123% of GDP. This is close to historical highs, notwithstanding the aberrant 133% pandemic level reached in Q2 2020.
An aging population placing higher demands on Social Security and Medicare, coupled with the high cost of the U.S. healthcare system and budget deficits, has caused a persistent gap between federal revenues and outlays over the past two decades. Under current policies, that gap is projected to widen, pushing debt to still higher levels. Fiscal year 2001 was the last year in which the U.S. government ran a surplus, with gross federal debt standing at $5.8 trillion, or 55% of GDP.
The budget reconciliation law enacted on July 4th, 2025, raised the debt limit by $5 trillion to $41.1 trillion. With the current federal fiscal year concluding, President Trump’s administration is now in a standoff with U.S. Senate Democrats over a looming partial government shutdown going into October.
The White House’s Office of Management and Budget sought information from agencies concerning programs and projects where discretionary funding will lapse, amid Republicans exploring permanently removing workers from some federal agencies. As we approach the last hours to reach a bipartisan agreement, Senate Minority Leader Chuck Schumer says Democrats will withhold the votes Republicans need to keep the government open unless there is an agreement to restore billions of dollars in healthcare spending.
Inflation remains sticky and is rising, although not at a rate that is alarming the Fed. In August 2025, the annual rise in the Consumer Price Index (CPI) was 2.9%, up from 2.7% in both June and July, and the highest rate since January 2025. Gasoline prices fell 6.6% over the 12 months to the end of August, and fuel oil prices were down 0.5%. In contrast, electricity prices increased 6.2% and natural gas prices rose 13.8% according to the U.S. Bureau of Labor Statistics (BLS).
The unemployment rate, at 4.3%, changed little in August or over the 12 months prior, but recent BLS revised job numbers indicate that the U.S. added 911,000 fewer jobs in the year ended in March than the BLS had previously reported, which is further evidence of a cooling labor market.
Bond investors were already pricing in a rate cut before the official September announcement. Demand increased for longer-term maturities up to 10-year debt, and a steeper yield curve is anticipated. As interest rates fall, the price of existing bonds with higher yields increases, with longer-dated bonds showing greater sensitivity.
The U.S. 10 Year Treasury yield, linked to mortgage rates, dipped as low as 4.0% earlier this month and ended the month at 4.2%, having been as high as 4.8% back in January. 30-year fixed mortgage rates declined to 6.3% toward the end of September, around the lowest level in the past year. The National Association of Realtors reported pending home sales rebounded 4.0% in August as declining rates pulled buyers back into the market. Of note, new home sales jumped 20.5% month-on-month in August.
All to say, 2025 is shaping up to be a good year for bond markets although, as rates drop, investors in low-risk bonds at the shorter end of curve especially may look to move some capital from the ‘sidelines’ into higher income generating instruments or consider taking on equity risk to seek adequate returns.
As the weakened U.S. dollar has stabilized in recent months, the boosted international returns (for shareholders in the U.S.) have faded, with returns now more dependent on underlying corporate performance. European equities have lost the momentum that delivered some outsized gains earlier in the year. In contrast, Emerging Markets have exhibited a strong quarter due to the inclusion of tech and AI-heavy stock weightings from China and Taiwan.
The People’s Bank of China left lending rates unchanged in September as expected, despite the Fed rate cut. Its one-year loan prime rate is now at 3.0%. Major stimulus measures are on hold following the country’s recent stock market rally, although the economic slowdown deteriorated in August with retail sales, industrial output, and exports rising, but at rates that missed expectations. China’s real estate slump also worsened.
The Bank of Canada recently joined the U.S. in cutting rates, while a pickup in the rate of inflation in the Eurozone is leading to caution among European Central Bank (ECB) policymakers. Forecasters expect the ECB to leave its benchmark rate in place for a third meeting in a row at the end of next month, with some economists believing it will refrain from any policy change until 2027.
The Bank of England governor warned that “we’re not out of the woods yet” in terms of rising inflation, which remains above the bank’s 2% target, while keeping the U.K.’s base rate steady at 4.0% in September. Earlier this month, President Trump became the only American president to have been granted two British State Visits, helping to solidify the U.S.-U.K. special relationship. Mr. Trump and the first lady were entertained by the British Royal Family and Prime Minister Sir Keir Starmer.
Mr. Starmer, who just led his Labour Party’s annual conference, is polling disastrously low after just 14 months in office. An election doesn’t need to be called until 2029, but already there are rumblings in his party of a possible leadership challenge. Growing illegal migration, slow economic growth, a widening budget deficit, and sticky inflation are all causes of voter dissatisfaction. The anti-immigrant populist party Reform UK leads in the polls, with the Conservatives trailing a distant third.
In the Middle East, Israeli Prime Minister Netanyahu agreed to a peace plan laid out by President Trump after close to two years of brutal war waged by Israel to neutralize the terrorist group of Hamas in Gaza. Hamas has yet to agree on the grounds that the plan neither leaves Palestinians with a credible path to statehood, nor guarantees an end to the fighting. It also requires cooperation from Arab states in establishing a “stabilization force” in Gaza.
As always, the investing, economic, and political news cycles churn at a rate that can’t be fully assimilated on a real-time basis. And while the mood of the U.S. equity markets has been one verging on euphoria this past quarter, especially surrounding prominent names, the bedrock of these markets are businesses generating measurable utility and value.
Our work here at Wealth Oklahoma is to identify that value in companies with sustainable models, healthy moats, and shareholder-friendly management with a long-term outlook that aligns with our investment goals. The market may climb to ever higher highs in the near term, or it may experience a measurable pullback, but we feel confident that tangible value translates to gains for stakeholders in the long run. As we say goodbye to summer and welcome another beautiful fall, we remain grateful for the continued trust you place in us as a financial steward as you navigate your unique, and we hope highly prosperous, financial journey.
The S&P 500 is an unmanaged index of 500 widely held companies and over 80% of the U.S. equities market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 companies maintained and reviewed by the editors of the Wall Street Journal. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the investment adviser representatives of Wealth Oklahoma and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you can lose principal. There is no assurance any strategy will be successful. There is no guarantee that any forecasts made will come to pass. Past performance may not be indicative of future results. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Dividends are not guaranteed and must be authorized by the company’s board of directors.
