It’s been an interesting year in the markets, and with just a few months left in 2025, now’s a good time to pause and take stock of where things stand.
In today’s update, we cover key market trends:
Year-to-Date Performance: Markets are up about 11%, led by tech and industrials.
Corporate Earnings: Strong results are driving markets to new all-time highs.
Inflation & Jobs: Inflation rose slightly last month and jobs have slowed.
AI Spending: Tech giants are in a race for market share.
Interest Rates: A future Fed rate cut looks likely.
Global Markets: International stocks are outpacing the U.S.
Your Portfolio: We’ll discuss why rebalancing remains critical.
A Strong Year for the Market
Year-to-date, the market is up about 11%—a solid number for just over eight months.
Much of the strength comes from a few sectors, including technology (Microsoft, Nvidia) and communication services (Google, Netflix). Also, industrials are performing well, up around 15% (Raytheon, Boeing, Caterpillar).
However, healthcare has barely moved, gaining about 1%. It’s hampered by political and regulatory uncertainty. Specifically, concerns are over potential changes to drug pricing and Medicare policies.
Other market activity included a brief hiccup back in April due to tariffs, when uncertainty pulled the market lower. However, markets have recovered and are now hitting new all-time highs.
Remember, tariffs only effect about 15% of U.S. GDP. We discussed the “real” impact of tariffs earlier this year in our post: The Economy, Tariffs & Consumer Sentiment. Suffice it to say, the media often leaves out vital information.
Earnings Drive the Story
At the end of the day, daily headlines create noise, but company earnings give us the real signal.
Overall, corporate profits are strong. In fact, much stronger than analysts expected coming into the year. Early-year forecasts predicted about 5% growth, but companies are on track for closer to 10%.
This strength has helped push markets higher despite ongoing worries about jobs and tariffs.
In fact, Morgan Stanley’s top equity analyst details three reasons for continued market growth in the coming months. (Note: the article allows one free view before a paywall.)1
Inflation & Jobs
Inflation is at 2.9% (up from 2.7% in July). The Fed’s long-term target is 2%. The rise is primarily being driven by increases in housing, food and energy costs. For a deep dive, read the August Consumer Price Index report.2
The job market has continued to soften. Government jobs are shrinking (includes early retirement packages), and many companies are trimming staff while raising prices to keep profits steady.
The August jobs report showed the U.S. added just 22,000 jobs, June was revised to a –13,000 job loss, and the unemployment rate rose to 4.3% (July was 4.2%), signaling a clear slowdown in the labor market.3
This Reuters article provides some simplified charts showing monthly changes in U.S. jobs, government jobs, and job gains and losses by sector.4
A key question in the months ahead is whether slowing job growth will become a bigger drag or if the economy can grow through it.
The AI Market Share Race
AI spending continues to be a major driver of economic growth.
Big tech companies, e.g., Microsoft, Nvidia, Google, etc., are pouring hundreds of billions into AI infrastructure.
It’s expensive, but unlike the dot-com bubble of the early 2000s, these are well-established, profitable companies with the resources to sustain the investment. This is a major contrast to the dot-com era, when many companies were newly formed and had no profitability history.
Overall, it’s a market share race; specifically, a competition to become leaders in a transformative technology.
Interest Rates & Global Markets
Markets are currently pricing in a 95% chance the Fed will cut rates soon, likely by 25 basis points. Overall, we’re anticipating a 1% cut by year-end.
Lower rates will help ease pressure on mortgages, boost housing activity and support continued growth.
Finally, international stocks are up about 20% this year, outpacing U.S. markets (for a change). Our decision to increase your exposure earlier this year is helping your portfolio take advantage of this momentum.
Portfolios
Tech’s fantastic run has been great for portfolios, but it can also make the sector a little too big.
This is why we’re constantly rebalancing, taking some of those profits and reinvesting them to keep portfolios diversified.
It’s an especially smart move in non-taxable accounts, since we can do it without a tax hit. We’re always watching your portfolio’s sector weightings to help keep it balanced and strong.
Please reach out with any questions.
–David Bunker, Financial Advisor & Licensed Fiduciary
Before You Go
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
Sources:
1: MarketWatch, The stock market is hitting records — three reasons why top Morgan Stanley strategist sees more room to run, https://www.marketwatch.com/story/the-stock-market-is-hitting-records-three-reasons-why-top-morgan-stanley-strategist-sees-more-room-to-run-33892ee8
2: Bureau of Labor Statistics, Consumer Price Index – August 2025, https://www.bls.gov/news.release/pdf/cpi.pdf
3 & 4: Reuters.com, US unemployment rate near 4-year high as labor market hits stall speed, https://www.reuters.com/business/us-unemployment-rate-near-4-year-high-labor-market-hits-stall-speed-2025-09-05/