As we enter the fourth quarter of 2025, markets continue to build on their remarkable rebound from the lows seen earlier this year. After a period of uncertainty in April driven by rising tariffs and geopolitical tensions, markets have rallied strongly offering a powerful reminder that, as the saying goes, “bull markets climb a wall of worry.” And indeed, there’s been no shortage of worries.
Despite reaching new all-time highs, the market is navigating several challenges:
- Moderating investor optimism
- The Federal Reserve beginning to cut interest rates
- Fiscal policy, deficits, and government shutdowns
- A growing concentration of gains in just a few large technology stocks
- Mixed signals from recent economic data
In this environment, our approach remains grounded in what has consistently proven to be a successful strategy: quality, discipline, and a long-term perspective.
From Pessimism to Opportunity
Back in April, investor sentiment was deeply pessimistic as tariff tensions peaked. Historically, periods of negative sentiment—when paired with a fundamentally sound economy—have often created excellent buying opportunities. That’s exactly what we saw this time.
Investors who stayed invested, or added to their portfolios during the dip, were rewarded as markets recovered. While it’s human nature to be cautious in uncertain times, these are often the moments when long-term investors benefit the most.
Much like excessive pessimism can lead to future gains, extreme optimism can be a sign of caution. Encouragingly, as markets pushed to new highs, investor sentiment has remained measured—not overly euphoric. We view this balance as a healthy sign for market sustainability.
The Fed’s Shift: A Signal of Confidence
In September, the Federal Reserve cut interest rates by 0.25%, bringing the benchmark range to 4.00%–4.25%. This move was widely expected and initially lifted market sentiment.
However, Fed officials made it clear they’re proceeding with caution. Inflation remains a concern, and future rate cuts will likely be gradual. From our perspective, this is a positive development: slow, measured policy changes signal confidence and stability. In contrast, aggressive cuts can indicate deeper economic problems.
Fiscal Policy and the Big Picture
In July, Congress passed a major fiscal package that clarified tax and spending plans for the coming years. While this brought some welcomed certainty, it also reignited concerns about the growing federal deficit—a narrative likely to continue to weigh on investor sentiment.
Despite the package passed just a quarter ago, Q4 is now starting off with a government shutdown as Congress failed to pass a funding bill. These periods bring a distinct level of uncertainty; however, the overall impact has been largely insignificant. Historically, shutdowns have not triggered recessions—in the past thirty years, the government has been shut down for a total of 80 days and none of these periods are linked to economic deceleration/recessions.
AI, Market Leaders, and a Narrow Rally
A defining feature of this year’s market rally has been the increasing dominance of a small group of large technology companies, often referred to as the Magnificent 7. These stocks have delivered strong returns, largely driven by enthusiasm for artificial intelligence (AI).
AI is undeniably a powerful trend, with major companies investing heavily in its future. But it’s important to remember: even exciting innovations can experience volatility if expectations run too far ahead of fundamentals. We’ve seen this before—most notably during the dot-com boom of the early 2000s. That’s why our investment strategy remains disciplined. We aim to participate in innovation without becoming overly dependent on any one sector or group of stocks.
Diversification vs Concentration
While the Magnificent 7 have led recent returns, our portfolios are intentionally diversified. That means we may not capture every gain during AI-driven rallies—but we also avoid the risk that comes from being overexposed to just a few names.
We focus on high-quality companies with proven resilience across multiple market cycles, not just those dominating headlines. Many of these businesses continue to perform well, even if they’re not grabbing the spotlight. Diversification, in our view, remains one of the most effective ways to manage risk and deliver strong long-term outcomes.
Looking Ahead: Stay the Course
The third quarter of 2025 reinforced a timeless investment principle: staying disciplined pays off. While market headlines often focus on short-term swings and standout stocks, long-term success is more often driven by consistency, quality, and a steady hand.
Markets will always face uncertainty—whether its economic data, interest rate moves, or geopolitical developments. But history shows that, over time, they tend to move higher. The path may not always be smooth, but patience and discipline remain your greatest advantages as an investor.
As always, we’re here to help you navigate whatever comes next.
| Thomas A. Toth, Senior Chairman | Kenneth Bowen, II President & CEO |