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October 2025 Market Commentary
by Wealthstone Group on Oct 09, 2025
Cuts and Crosscurrents
"History never repeats itself, but it does often rhyme." – Mark Twain
The Fed Bends, Not Breaks
The Federal Reserve’s September rate cut – 25 bps down to a 4.00–4.25% target range – was the key refrain of Q3 After the fastest hiking cycle in decades, the Fed has pivoted toward easing, citing balance-of-risks and a softer labor market. Futures markets are already pricing additional cuts into 2025, with a projected year-end target near 3.6%.
Rate-sensitive sectors such as housing and investment-grade credit should benefit, but policymakers remain cautious about sticky inflation. The Fed’s path is likely gradual, not a straight descent.
Returns in Review
Markets have rewarded investors who stayed invested rather than clinging to cash. Performance dispersion across regions has been meaningful, highlighting the value of selective positioning.
- U.S. Equities: The S&P 500 is up nearly 15% YTD, hovering near record highs, driven by large-cap tech and ongoing AI-linked earnings strength. QTD performance has been more muted but remains positive despite September volatility.
- Developed International (MSCI EAFE): International developed markets have trailed the U.S. for the last several years, but 2025 has been their year to shine. Japan, while trailing broader Developed indexes, has attractive forward outlook in our opinion. The MSCI Japan is up over 21% YTD (in dollars), pushing to new highs as shareholder reforms, surging buybacks, and AI-linked themes drive returns. Corporate ROE is near a four-decade high, reflecting real reform momentum. Europe has a slightly more mixed outlook in our opinion: a pro-growth agenda supports sentiment, but structural challenges (energy, fiscal burdens) temper upside from these levels
- Emerging Markets (MSCI EM): Emerging markets have been among the best performers, with the MSCI EM index up over 28% YTD in U.S. dollar terms. Gains have been broad, with contributions from Taiwan, South Korea, and India tied to AI and semiconductor supply chains. China remains neutral in positioning as trade tensions and demographic headwinds offset stimulus measures.
- Fixed Income: Core bonds (Bloomberg U.S. Aggregate) delivered mid-single digit gains YTD as yields retreated modestly after the Fed pivot. High yield has outperformed core bonds thanks to solid corporate fundamentals and carry.
- Cash & Short Bonds: Money markets and short-term Treasuries underperformed nearly every other major asset class as falling rates cut into yields. Allocations to cash that peaked midyear at ~21% of the average advisor’s fixed income sleeve are already eroding relative performance. In our opinion, over allocation to cash as a “fixed income substitute” poses significant risk to forward returns.
Tariffs and Taxes Rewire the Backdrop
While rates set the tempo, tariffs and tax shifts are rewriting the melody. Expanding tariffs are raising government revenue while lifting costs for import-heavy companies. Domestic producers gain a measure of pricing power, but multinational firms face supply chain strain and margin pressure.
Fixed Income: Beyond Cash, But Watch Duration
The most common investor error this year has been overstaying in cash. With the Fed cutting, portfolios should lean into fixed income—carefully.
- Intermediate over long bonds: In shallow cutting cycles, long Treasuries have underperformed. Intermediate maturities look better aligned to this environment.
- Credit over pure duration: Absolute yields remain attractive; investment grade and select high yield add income without excessive volatility.
- Alternatives matter: Liquid, market-neutral and tactical funds provide ballast with low correlation, a useful hedge against policy risk.
Positioning for Q4
Three guiding themes shape the playbook for the quarter ahead:
- Policy ambiguity – modest Fed easing with uncertain inflation trajectory.
- Tariff-driven dispersion – sectors reshuffled by costs and global trade responses.
- Selective opportunity – intermediate credit, quality equities, and diversifying liquid alternatives.
Closing Thought
Q3 was a stanza where the Fed softened, tariffs hardened, and taxes shifted the rhythm. As we enter Q4, the score grows more layered: easing rates support risk assets, but tariffs and fiscal shifts keep dispersion high. Investors who treat tariffs, taxes, and rates as a coordinated ensemble—rather than isolated beats—will be best positioned for the next movement.
Louis Tucci; Partner | Senior Investment Advisor
Paulo Aguilar, CFA, CAIA; Partner | Senior Investment Advisor
Mark H. Tucker, CFA; Chief Investment Officer
Chuck Bettinger; Portfolio Manager
Securities offered through Arkadios Capital. Member FINRA/SIPC. Advisory services through Arkadios Wealth.
Past performance does not guarantee or is indicative of future results. This summary of statistics, price, and quotes has been obtained from sources believed to be reliable but is not necessarily complete and cannot be guaranteed. All securities may lose value, may not be insured by any federal agency and are subject to availability and price changes. Market risk is a consideration if sold prior to maturity. Information and opinions herein are for general informational use only and subject to change without notice.
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The information is current only as of the date of this communication and we do not undertake to update or revise such information following such date. To the extent that any securities or their issuers are included in this communication, we do not undertake to provide any information about such securities or their issuers in the future. The views expressed reflect the author(s) personal view and not the view of Arkadios Capital or Arkadios Wealth. This report is provided on a “where is, as is” basis, and we expressly disclaim any liability for any losses or other consequences of any person’s use of or reliance on the information contained in this communication.