Q3 2025 summary and Q4 outlook

Economic Theme: Rate cuts vs an Economic slowdown.

After sitting at 4.340% for the whole of 2025, Q3 finally brought the first official rate decrease from the Fed.  Markets are now betting on the Fed joining most central banks in easing interest rates. Rate cuts between 125 to 150 bps are anticipated over the next year. 

This expectation was enough to offset investor fears of a recession or rebound in inflation. 

A softening US labour market gave a green light to keep easing rates. While job growth is indeed slowing, so far unemployment remains stable.

Globally, while economic growth is slowing, some positives have emerged:

-lower oil prices

-the weaker US dollar

-inflation has been stable

-and for the most part a global trade war has moderated

In the US, there is cautious optimism.

Fundamentally, its strong earnings growth which has been growing at 13% in 2025 and expected to be the same for 2026. Earnings that have stabilized and have been one of the key drivers of the markets. Variations seem frothy but earnings can alleviate high valuations. Strong corp earnings and AI spending provide a solid floor combined with upcoming fiscal stimulus (tax cuts and reform) could boost financials and industrials.

In my opinion, the biggest concerns would be US policy uncertainty which could affect the USD, inflation and interest rates.

The same applies to Non-US stocks, which are now particularly sensitive to the USD and US policy uncertainty.

Fixed income: A decreasing interest rate cycle will continue to provide tailwinds for Active Bond portfolios. 

Govt Shut down:

As we move into the second week of the government shutdown, financial markets show little sign of distress. Despite the stalemate on Capitol Hill, last week saw the S&P 500 Index reach an all-time high, illustrating continued investor confidence. Meanwhile, 10-year Treasury yields have edged down, suggesting that bond investors are not overly anxious about the situation. Although the U.S. dollar experienced a slight dip, measures of volatility across stocks, bonds, and currencies remain subdued. This calm market response indicates that investors might be betting on a resolution soon, or are focusing on other positive economic indicators that have overshadowed the immediate impact of the shutdown. In our view, while the shutdown may be disruptive, it’s unlikely to be destructive.

Notably, no government shutdown has had a substantial adverse effect on the stock market. In each instance since 1980, the S&P 500 Index has been higher one month after the start of a shutdown, indicating that the impacts are short-lived and minor.

Investors should likely avoid changes to their asset allocation just because of a potential government shutdown. If anything, market volatility during government shutdowns has presented buying opportunities for tactical investors aiming to capitalize on mispriced or oversold assets.

Back to basics:

A portfolio of quality stocks and bonds that benefit from various market cycles and dynamics driven by active management using a specific process and systems will always provide stability and consistency through all cycles and speculative events.

I was recently in Chicago with some of the Principal Managers we use in our portfolios.

One of the common takeaways from those conversations was that emotion is consistently removed from the investment process. The time active management is most "excited", showing a glimpse of emotion, is actually during times of uncertainty, during pullbacks, price dislocations, geopolitical events, etc. This is when opportunity is most prevalent and this is when the managers use their proven time-tested system to seek out that opportunity. Meaning, while the average investor is fearful, they are greedy!

As always, we appreciate your ongoing trust in business. Please feel free to reach out with your questions. We are always happy to help!

All my best.

roger