Investment Outlook: Fall 2025

By Argent Wealth Management, LLC on October 14, 2025

Third Quarter Review, Fourth Quarter Outlook

Market Ignores Headlines, Rewards Fundamentals

Markets calmed down significantly in the 3rd quarter, and major U.S. indices enjoyed a steady incline. Volatility in stock & bond markets plummeted as we moved further away from the chaos of the initial rollout of tariff policies in April. The S&P 500 rose 7.8% in the past three months to reach 6,688 on September 30th, just a few points shy of an all-time high. The constant barrage of tariff announcements has been countered by the agreements made with most key foreign nations, giving investors what they crave most: certainty. Corporate earnings growth crushed expectations this summer, coming in at 12% vs. the 4% analysts expected. The charts below highlight 1) the returns of major indices during the quarter, and 2) the correlation of S&P 500 volatility (based on activity in the options market) to the market’s performance. The high volatility witnessed in April leads to historically strong gains in the following year.

Fig. 1: Emerging Markets, Tech Leads Quarter

Fig. 2: S&P 500 vs. VIX Index

Specter of Rate Cuts Lifts Small Caps

After a continued period of underperformance, the Russell 2000 index of small cap U.S. companies was competitive with larger equities in the July-September timeframe. Russell 2000 Growth stocks were up over 12% for the quarter, while its’ value counterpart (Russell 1000 Value) returned less than 4%. As a reminder, the Russell 1000 attempts to track the 1000 biggest U.S. stocks by market capitalization, while the Russell 2000 tracks #1001-3000 in size. Several tailwinds aided small firms, including a decline in short-term interest rates, renewed risk sentiment, calmer trade conditions, and a pickup in mergers & acquisitions. Small stocks are dependent on short-term debt due to the risk of their cash flows, so the odds of continued rate cuts (two more are expected for this year, see below) are very helpful, and the lessening of recession fears since April’s peak has caused investors to take a second look at this group. Russell 2000 firms also do a higher percentage of business domestically vs. the stocks listed in the S&P 500, although their supply chains are still exposed to higher tariff rates and their bargaining power with foreign suppliers is lower. The pent-up demand for M&A is being fulfilled, as evidenced by strong earnings
from Wall Street firms, as anti-trust scrutiny has declined during Trump’s term. Lower rates make financing these deals easier, to boot.

Fig. 3: Small Caps Lead Large During Q3

Fig. 4: Household Debt Service Ratio

Cautious Investor Sentiment Opens Door for Further Gains

Despite a massive comeback from April’s lows, there are signs that investors are hesitant to fully re-engage with equities. Worries over the tariffs and higher-than-normal valuations have caused many retail investors to remain on the sidelines. This chart from the American Association of Individual Investors shows that mom-and pop investors have leaned pessimistic over the past few weeks. This tends to be a contrarian signal, as professional money managers rush in to scoop up stocks when sentiment is down. Historically, the S&P 500 has returned 11% per annum according to Ned Davis Research when fewer than 60% of investors are bullish.

Fig. 5: What Direction do AAII Members Feel The Stock Market will be in the Next Six Months?

Rally Has Broadened Out, But Tech Remains Top Dog

Technology stocks have been the clear market leaders in the past few years and this quarter was no different. However, the rest of the market participated in the comeback, with 9 of 11 S&P 500 sectors in the green during the past three months. The only exceptions were the volatile, commodity-heavy materials group, and consumer staples, which tend to perform best in downturns. Communication services and consumer cyclicals contain many of the companies we would commonly think of as “Tech Stocks,” including Google, Facebook, Amazon, and Tesla. They came in second and third respectively for the quarter, cementing the place of the most innovative corners of the economy atop market returns.

Fig. 5: All But Two Sector Positive for the Quarter

Labor Needs Lowered Due to AI, Immigration Policy

Cracks were seen in U.S. hiring this quarter, with jobs growth slouching to a three-month average of 29K. Tighter illegal immigration enforcement, as well as declines in legal immigration and population growth as a whole, have reduced the number of jobs a healthy economy needs to add each month. Job Openings remain at a 1:1 ratio with the amount of unemployed workers. However, as we mentioned in the last quarterly letter, a strong amount of anecdotal evidence shows that the uptake of artificial intelligence is cutting the amount of entry-level jobs available, creating a spike in unemployment among young workers, with the college graduate unemployment rate topping the overall unemployment rate, a phenomenon rarely witnessed before the pandemic.

Risks on Horizon Include Shutdown, Tariffs, & Fed Independence

As we enjoy the continued bull market, it is important to remain cognizant of what could derail it. Corrections of 5-10% are common and even healthy in the stock market, as they remove speculation and froth from certain overvalued companies, and remind investors to focus on revenue & earnings rather than hype. A pullback of greater than 20% coming to fruition would likely require drastic changes to government policy or the GDP growth rate. In the meantime, risks to the market include a government shutdown (which are historically very short-lived), sour consumer reaction to tariffs (this is already anticipated and priced into many impacted stocks), and further encroachment on the Federal Reserve’s independence. While this administration could push the Fed to lower rates in the near-term, this could lead to a resurgence of inflation. Higher inflation expectations tend to lead to higher bond yields,
which makes borrowing more expensive and saps economic activity. While considering these risks, it is important to note that trade policies have not yet pushed up prices to the extent many imagined, with inflation remaining sticky but not overwhelming at 3%.

Sources:

Fig. 1: Factset, Argent Wealth Management, LLC © 2025 on 9/30/2025

Fig. 2: Ned Davis Research, Inc. © 2025 on 9/30/2025

Fig. 3: Factset, Argent Wealth Management, LLC ©
2025 on 9/30/2025

Fig. 4: CME Group, Inc. on 9/30/2025

Fig. 5: American Association of Individual Investors on 9/30/2025

Fig. 6: Factset, Argent Wealth Management, LLC © 2025 on
9/30/2025

Fig. 7: Federal Reserve Bank of New York on 9/30/2025