3rd Qtr 2025

Newsletter 3rd Quarter 2025

From the Hunter’s Moon on Oct. 7 (also the first Super Moon this year), to howling winds and cascading autumn leaves, to the foreboding pricking of witches’ thumbs, October has announced its arrival. And with it has come the October Effect, which traditionally haunts investment markets, and has been popping up in headlines of financial outlets. While a notorious month for past crashes, October has marked the END of Bear markets more often than the start. The experience of many investors, including well-known Peter Lynch, has shown it may not be a bad month to invest. Still, we’re talking about a month that sprouts pumpkins, witches, giant skeletons, and ends with Halloween. If any month makes us more susceptible to the spooky, the mystical, and the unexplainable, it sure is October. 

This year investors may be especially likely to believe in the unexplainable. Equity markets have defied predictions and overcome a “witch’s brew” of political pressure, tariff wars, and economic shocks, to mount a historic comeback beginning in the 2nd quarter. Griffin Curtin’s weekly piece, “What Happened Last Week” reported these figures for week ending Oct. 3rd:[1]

           YTD.                                         1 YR

S&P.                     +15.3%.                                   + 19.4%

DJIA.                    +11.3%.                                   +13.2

                                                                NASD.                 +18.6%.                                   +28%

We recently ran across an interesting article on Advisorpedia.com by Aswath Damodaran, “The Great Market Illusion: Why stocks keep rising, and why that may be a problem.” He writes the current concern among analysts and investors about the market being near or in “bubble territory” reminds him of Alan Greenspan’s 1996 assessment of the markets experiencing “irrational exuberance.” While in hindsight Damodaran finds Greenspan’s words prophetic, he asserts the market correction Greenspan warned of didn’t occur until 2001:

Greenspan’s words were the beginning of the belief that central bankers could have the wisdom of market timers and the power to bend the economy to their views. I believe that central bankers have neither the power nor the tools to move the economy in significant ways.[2]

This came to his mind when hearing current Fed Chief Powell describing stocks as being “fairly highly valued." He notes that literally speaking the words are at war with one another; as stocks are either fairly valued or highly valued. Damodaran agrees stock prices are richly valued right now, and he makes a case they are not in “bubble territory.” It may be too early to say whether earnings can justify prices, and stock prices may continue to rise, not because of speculation or overpricing, but because of rising earnings.  

Damodaran also discusses the role alternative interest paying investments, primarily Treasuries, can play in inducing equity owners to move to the sidelines. He cites the stagnant performance of the 10-year Treasury over 2025 YTD, and assesses “directionless treasuries,” corporate debt, and Fed inaction (until the rate cut in September) are major reasons why they have not produced a compelling return so far. In addition, if more rate cuts follow, the yield on cash will become less attractive. One problem with waiting on those sidelines is you may be waiting for a correction that never comes. Earnings growth or changes in the economic or financial landscape can alter the behavior you were expecting. Even if the correction does occur, Damodaran says, “market timing is noisy and flawed; markets can stay mispriced for longer than you can stay solvent.”[3] Recently we’ve had some good conversations with clients on whether to significantly reduce exposure to equities. If you’re thinking about this, it’s important to consider potential capital gains in taxable accounts, and how best to continue your long-term goals and risk tolerance. Please reach out to us if you have questions or concerns. 

Another area that may be spooky to some, but one of the most discussed in the market for potential growth (and risk) is AI. Both are widely debated. As we think about how to study and interpret the economic and financial landscape, including how and why equity markets seem to be defying gravity, we ask ourselves how we can trust the data we see is real. Is there a way to take advantage of the benefits AI can bring, while avoiding taking misinformation as reality? A recent article, “Who Can You Trust in a World of AI, Outrage, and Misinformation?” by Jim Frawley, caught our attention. Jim writes, “When we can’t easily find truth, we default to suspicion. Information is everywhere. Understanding is rare.” He discusses the growing importance of communication with others in testing the information we are gathering. Discussing and debating our understanding of what we see, hear, and read with others “provides context, not just content.” He emphasizes the role of AI in making content more readily available can be powerful. Our tendency to take in and process that information passively, however, is fraught with risk. “We know a lot but think very little.” We tend to form opinions and act without communicating with peers over data those opinions could be based. Opportunities to connect with and communicate with others are becoming scarcer in today’s world. Frawley says misinformation is not the risk; it is letting someone else think for us. Interacting with other people, focusing not on proving we are right in our opinion, but rather on why others may have a different one, and then applying critical thinking to all the data we have taken in, will foster trust in our own thought process. He states, “AI is not the enemy, passivity is.”[4]

2025 is certainly giving us a great example of how fast the world is changing, and how careful we need to be not to jump to conclusions, fall victim to illusions, or discredit the unexplainable as impossible. And what better time than the mystical month of October to reflect on this. Next year will be here before we know it, so lastly, we want to review some housekeeping items for us and our clients.

Please be mindful there are a few changes for Federal taxes from the passage of the “One, Big, Beautiful Bill.” For tax years 2025-2028, the Senior Tax Deduction (over age 65) will provide a $6k single filer deduction, and $12k for joint filers with AGI below $75k. This legislation also raises the State and Local tax deduction cap to $40,000 for single and joint filers who itemize deductions, however there are several caveats and phase outs for these changes. We recommend a consultation with your tax professional to review details. Some of these tax deductions for seniors could play a role in our planning.

As the winter holidays approach, we hope you’ve enjoyed the extended summer and are soon ready to enjoy the holidays. We will be available to discuss end-of-year planning, any changes you may be feeling in terms of risk tolerance, goals, or whatever else you may have put on the back burner this year. And if you haven’t already, and this applies to you, please call us to process your RMDs for the year.

We know the holidays are busy for everyone; there are usually more activities available than you have time to enjoy. Seeing as many of you as possible at our annual Open Houses is a major goal for us, and with that in mind, we are moving our event to early 2026. Our hope is it will be soon enough after the holidays to still feel celebratory, but enough time for you to have some space on your social calendar.

So, whether the markets bring tricks, treats, or a little of both, we’ll be watching and preparing to address them. Meantime, thank you for your continued business and your trust.

 Happy Fall;

Debbie, Preston, and Katie