INSIGHTS

October 9, 2025

Market Outlook

Third Quarter 2025

Narrow credit spreads (signaling economic optimism), improving earnings breadth, and record profit margins were all supportive of this quarter’s equity performance.

Market Summary

Markets climbed higher in the third quarter, producing one of the strongest S&P 500 rallies in history following April lows. In an uneven economy, some leading economic indicators improved while labor softness prompted the Fed to cut rates for the first time since December 2024. Lower rates pushed equities higher in the U.S. across all sizes and styles. International equities also responded well to their own central bank rate cycles in addition to dollar weakness.

Bonds performed well due to the Fed’s easing bias. U.S. Treasury yields fell to a lower range, with the 10-year yield closing the quarter at 4.15%. The average 30-year fixed-rate mortgage fell to 6.36% from 6.80% at the beginning of the quarter.

Narrow credit spreads (signaling economic optimism), improving earnings breadth, and record profit margins were all supportive of this quarter’s equity performance. All sectors except Consumer Staples contributed positively to the quarterly total return.

Economy

The employment market has been slowly weakening over the past few years, mostly due to Fed tightening in 2022-2023 and tariff-driven margin pressure this year. The unemployment rate reached a post-pandemic high of 4.3% but

remains historically low, putting the Fed in the unfavorable position of trying to both stimulate job growth and fight tariff-related inflation. In September the committee responded to the weak new jobs market by lowering the federal funds rate by 0.25%. Consensus expectations call for additional 0.25% cuts at both the October and December meetings.

The outlook for labor is better in 2026. Large-company profits are broadly strong, and small-business confidence and hiring plans are up. Full capital expenditure (CAPEX) depreciation and deregulation will also help create new jobs.

The US economy is projected to grow by 1.8% in 2025—a slowdown from the 2.8% expansion in 2024. However, recent revisions to second-quarter GDP data revealed that the economy grew at a much faster pace than initially estimated, reflecting stronger-than-expected business investment and strong consumer spending on services. Third-quarter GDP is also on track for solid growth, signaling continued resilience despite elevated uncertainty from tariffs.

Analysts don’t expect the US government shutdown to have a large impact on US equity markets, large companies, or major government contractors. The most significant risk is that it has stopped agencies from releasing economic data, creating uncertainty about how the economy is doing. However, many non-government entities track similar data.

Investment Outlook

The AI investing theme that emerged in late 2022 has been driving S&P 500 returns for three years, leading to a very narrow yet profitable market. The Communication Services, Technology, Industrial, and Utility sectors have been prime beneficiaries due to the need for more energy and computing power to
enable AI applications. Yet the inter-connectedness of the spending and the potential for over investment remain risks to monitor.

Disclosures

Tandem Wealth Advisors LLC (“Tandem”) is an SEC-registered investment adviser. The information published herein is provided for informational purposes only and does not constitute an offer of investment advisory services. All information is subject to change without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. No investment process is free of risk, and investors may lose all their investments. Past performance is not indicative of current or future performance and is not a guarantee. The opinions expressed in this document may not fit your risk and return preferences. The information provided is obtained from sources believed to be reliable, but we cannot attest to its accuracy. Past performance is not necessarily indicative of future returns. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations or comparable terminology. Due to various risks and uncertainties, actual events, results, or performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation of future events or conditions. Additional copies of Tandem’s ADV Part 2A and/or Privacy Policy are available upon request by phone at 602-297-8600 or by email at [email protected].

Index Definitions

The S&P 500 Index measures the performance of the large-cap segment of the U.S. equity market. The S&P MidCap 400 Index measures the performance of the mid-cap segment of the U.S. equity market. The S&P SmallCap 600 Index measures the performance of the small-cap segment of the U.S. equity market. The Nasdaq 100 is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity market. The MSCI World Ex USA Index captures large- and mid-cap representation across 22 of 23 developed market countries, excluding the U.S. The MSCI Emerging Markets Index captures more than 1,400 large- and mid-cap securities in 24 countries spanning five regions. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Bloomberg Barclays Investment Grade Corporates Index measures the investment-grade, fixed-rate, taxable corporate bond market. The Bloomberg Barclays Corporate High Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. The Bloomberg Barclays Investment Grade U.S. Convertibles Index tracks the performance of investment-grade, U.S. dollar-denominated convertible securities. S&P 500 Sectors measure segments of the U.S. stock market as defined by GICS®. All index performance data sourced from Bloomberg.