10 Charts Showing Top 10 Market Themes For Client Conversations In Q4 2025

For financial advisors, there has perhaps never been a better time for meaningful financial planning and portfolio conversations with clients. Calmer markets make it easier to discuss the principles of long-term investing and review asset allocations without the emotions that accompany market stress. At the same time, recent volatility remains fresh in many investors' minds, providing valuable context. This combination creates an ideal environment for reinforcing key investment principles, helping clients maintain perspective and make level-headed decisions into the future.

Today's market environment continues to present both challenges and opportunities. On the one hand, markets have risen to new all-time highs, overcoming concerns around tariffs, inflation, geopolitics, and more. On the other hand, there are emerging signs of economic weakness in the labor market that are driving recession fears; some worry about a bubble in artificial intelligence stocks, and broad market valuations are approaching record levels.

This provides an opportunity to revisit one of investing's most counterintuitive principles: bad news can be good news for long-term investors. Market downturns, economic concerns, and periods of pessimism are never pleasant, but they are often when valuations become most attractive. And yet, human nature works against this, since most people prefer to invest when economic conditions appear positive and markets are climbing steadily. It's only in hindsight that investors wish they had stayed the course.

To help ground these conversations, the following ten market drivers for the fourth quarter and beyond are paired with charts and key talking points designed to support client discussions. All of the charts are also available for download as a presentation here (updated as of 9/30/2025).

1. Markets Are At All-Time Highs

The stock market has reached new record levels 28 times so far in 2025. The drivers of these positive returns include double-digit corporate earnings growth, Fed rate cuts, enthusiasm for artificial intelligence, and broad investor optimism. While these developments have created impressive portfolio gains, they may also raise questions about whether current levels are sustainable.

It's natural for some investors to feel uncomfortable buying near market peaks, since it may feel as if the market is due for a pullback. This perspective can be misleading, though. While it's true that some market declines can begin from recent highs – including all-time highs – this doesn't mean that all-time highs must result in pullbacks. In many cases, markets can continue to make new highs as a bull market continues, as it has over the past few months.

Historical data makes this clear. The chart below shows that markets reach many new record highs during market cycles. 2021, for instance, experienced 70 new all-time highs, representing more than a quarter of all trading days that year. This demonstrates that reaching new highs is a normal part of the market cycle and not necessarily a warning sign.

It isn't just index levels that are near their peaks, but valuations as well. Nearly all valuation metrics for major indices such as the S&P 500 are elevated, and in some cases approaching their dot-com highs. Here are some helpful talking points to address valuation concerns amid all-time highs that are likely to resonate with clients:

• Valuations are important for long-term investors, but they do not predict short-term market movements. History shows that markets can perform well for extended periods if the economy remains healthy. Valuations help to determine an appropriate asset allocation mix, which can be adjusted as the market cycle evolves.
• The current environment features several factors that have pushed valuations higher: corporate earnings continue to grow at healthy double-digit rates, profit margins are strong, balance sheets are healthy, and the Fed's rate cuts provide a favorable backdrop.
• Valuations are high for the broad index, but not across all parts of the market. While investors may be paying a premium for future growth expectations in certain sectors – particularly for technology companies – other sectors, styles, and sizes have favorable valuations and healthy earnings growth expectations. For example, small-cap value companies are trading on a price-earnings ratio of 13.6x.

For clients, the key lesson is to resist the temptation to time market movements since markets can continue rising over long periods, even when valuations appear high. The question then, isn't whether to be in the market at all, but how much exposure is appropriate. Avoiding the market entirely often proves more costly and counterproductive. Instead, for those worried about higher valuations, adjusting portfolio allocations and using techniques such as dollar-cost averaging to invest over a range of valuation levels can offer a balanced way to help clients stay invested while supporting long-term goals.

2. Corporate Earnings Have Exceeded Expectations

Valuations can improve not only when prices change but also when corporate earnings and other fundamentals improve. This is why the state of the economy matters to investors: steady economic growth often leads to healthier earnings, which in turn support stock prices over the long run.

The next chart shows this pattern over the past 35 years. Mathematically, this relationship is the result of decomposing returns into changes in fundamentals and their related valuation multiples. For example, the data below highlight earnings against the S&P 500 index. The differences between the lines represent changes in price-to-earnings ratios. Since valuations can often be mean-reverting, the two lines on this chart tend to reconverge over time.

The current earnings environment suggests that business conditions remain more robust than many investors expected. The latest reporting season delivered results that exceeded analyst estimates, which supported the latest market rebound. In particular:

• 79% of S&P 500 companies beat analyst estimates on revenues in the second quarter, while over 80% exceeded earnings expectations, according to FactSet. These figures are well above the longer-run averages of around 60%, indicating that companies are not merely meeting modest expectations but delivering genuinely strong performance.
• The consistency of strong performance also suggests that corporate fundamentals have been steadier than economic headlines might suggest. With corporate earnings growing by 10.4% in Q2, this marked the third consecutive quarter of double-digit earnings growth.
• Consensus estimates suggest that the S&P 500 earnings-per-share will reach a record of $263 in 2025, according to LSEG data. Analysts also expect earnings growth to exceed 10% in 2026 and 2027. While these numbers are subject to change, they demonstrate that the market continues to anticipate healthy business fundamentals.
• This growing confidence was reflected in earnings calls – there was a 32% decline in the use of the term "uncertainty" in Q2 compared to Q1, despite ongoing market concerns about tariffs and other policy issues. This suggests that while investors may worry about external factors, companies are seeing clearer paths forward for their businesses.

These broad earnings trends also suggest that healthy fundamentals are not just about artificial intelligence investments, but have supported many sectors and industries. All eleven sectors of the S&P 500 are projected to report year-over-year earnings growth over the next twelve months, led by Information Technology (20.2%), Industrials (15.9%), and Materials (14.4%). Even the slowest earnings growth rates – Energy (8.2%), Utilities (7.8%), and Consumer Staples (5.3%) – are positive by historical standards.

From a long-term investing lens, these earnings trends also provide a more detailed perspective about current market valuations. While price-to-earnings ratios may appear elevated in historical terms, this is in no small part due to better-than-expected earnings growth.

3. AI Investment Continues To Drive Investor Sentiment

Technology stocks, and artificial intelligence ones in particular, have been a primary driver of market optimism even before the 'ChatGPT moment' of late 2022. Companies are making substantial investments in AI infrastructure in the hundreds of billions, boosting a number of industries that include semiconductors, data centers, and energy.

In other words, much of this investment is not just in companies that build large language models, but in those that make these technologies accessible to consumers and businesses. Some of these are known as 'hyperscalers' since their investments in rapidly expanding cloud infrastructure are needed to support the computational needs of ever larger AI models. This has led to a number of market dynamics:

• The AI boom has created significant market concentration. The "Magnificent 7" technology stocks – Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla – now constitute about 35% of the S&P 500. Market concentration is not necessarily a problem if it represents a long-term shift in the world, such as when railroads dominated the stock market in the 19th century. However, it does mean that many investors may be overweight in these stocks whether they intend to be or not.
• Global AI spending is expected to reach $375 billion in 2025, and to grow another 33% in 2026. Chipmaker Nvidia recently made headlines when it announced a $100 billion investment in OpenAI to fund what Nvidia CEO Jensen Huang called "the biggest AI infrastructure project in history." Some investors are wondering if this spending will pay off for these companies and the broad market.
• The economic impact is already measurable. AI investment contributed $152 billion to GDP in the first half of 2025, compared to only $77 billion from consumer spending during the same period. This highlights how new technologies can fundamentally alter the economy, creating new patterns that are important for investors to understand.

The following chart underscores how much the Magnificent 7 stocks have outperformed the broader market. While the S&P 500 and Nasdaq have experienced strong returns of 100% and 105% since the end of 2020, the Magnificent 7 has risen nearly three times more. While this has benefited many investors, the concentration of market returns in a handful of AI-related companies can also create portfolio risk. Nearly all investors now have heightened exposure, often without realizing the extent of their concentration. This means that shifts in AI sentiment or individual company performance can disproportionately impact portfolio returns. In 2022, for instance, rapidly rising interest rates led to significant declines in these sectors.

History also reveals a consistent pattern with transformative technologies: initial skepticism gives way to rapid adoption, followed by market enthusiasm, and eventually integration into the broader economy. The telegraph, electric power, automobiles, and the internet all followed this trajectory. While the long-term potential of these innovations proved legitimate, markets consistently overestimated the speed at which profits would materialize.

For this reason, the current market concentration requires careful portfolio management. Understanding historical lessons can help investors maintain appropriate perspective and diversification as technological innovation continues to unfold.

4. The Fed Is Expected To Cut Rates Further

Amid this backdrop, monetary policy decisions have heightened importance as the Fed tries to balance a variety of market and economic concerns. As was widely expected, the Fed cut interest rates by 0.25% in its September meeting, marking the first reduction since the end of 2024. This resumption of rate cuts takes into account stubborn inflation trends, weaker employment data, and broader economic growth that remains steady. In their latest statement, the Fed emphasized that they cut rates because "uncertainty about the economic outlook remains elevated" and "downside risks to employment have risen."

Over the past three decades, it's been rare for the Fed to cut rates based entirely on its own discretion. More often, its hand has been forced by crises such as the 2020 pandemic. The chart below shows that the Fed has historically raised rates steadily, but cut rates suddenly. What makes the current situation unusual is that the rate cuts are aimed at reversing the rapid rate hikes that began in 2022 while still keeping the economy in balance. Adding to these unique circumstances is that these cuts are occurring while the market is trading at all-time highs – a relatively rare occurrence.

What really matters is why the Fed is cutting rates, not just when or by how much:

• The Fed's job is to balance jobs and inflation as part of its "dual mandate". When the outlook is hazy, it's natural for Fed officials and other economists to have differing views on the path and size of upcoming rate cuts. This is the case today with wide dispersion among officials' rate forecasts. Mixed signals also explain why there is disagreement between the Fed and the White House.
• Despite this disagreement, it's important to keep in mind that the Fed had been expecting to cut rates for quite some time. Each of the recently published Summary of Economic Projections showed that rate cuts were likely to begin this year, even if the number and magnitude have varied based on tariff news and market swings. The Fed's latest projections show there could be two additional cuts this year, with an improved growth outlook.
• There is some precedent for rate cuts around market highs. During Alan Greenspan's tenure, the Fed cut rates three times in 1995, reducing them by 75 basis points, from 6% to 5.25%, while the S&P 500 was near record levels. These cuts were described as 'insurance' against economic slowdown, and markets continued rising afterward. Similarly, in 2019, the Fed made three 'insurance' rate cuts totaling 75 basis points while the S&P 500 was at record highs. In each case, the Fed's approach was intended to sustain economic expansion rather than reacting to existing problems.
• Rate cuts generally benefit both businesses and markets by lowering borrowing costs, supporting corporate growth, and making stocks and bonds more attractive relative to cash. This dynamic holds true even when cuts occur near market highs, as demonstrated by the positive market performance following the 1995–1996 and 2019 cutting cycles.

Looking ahead, the trajectory toward lower short-term rates will likely continue, particularly as Fed Chair Jerome Powell's term ends in May 2026 and a Trump appointee is set to succeed him. Market-based expectations based on fed funds futures suggest that the Fed may cut rates at its October and December meetings, before slowing the pace of monetary easing in 2026.

While the Fed does control the short end of the curve, it's important to remember that long-term rates are primarily driven by market forces, not government policy. These rates are far more impactful for the overall economy since they affect long-term borrowing costs for companies and individuals. There are many historical situations during which the Fed 'lost control of the curve' or was 'behind the curve', which is why Fed credibility matters. For investors, it's more important to focus on the overall interest rate environment rather than reacting to individual Fed decisions or watching the day-to-day political headlines.

5. Job Market Weakness Has Raised Recession Concerns

When it comes to economic concerns, the softening labor market is perhaps the biggest source of recession fears. While unemployment remains historically low at 4.3%, the pace of job creation has slowed dramatically. As highlighted in the following chart, the latest report shows that the economy added only 22,000 payrolls in August, compared to an average of 123,000 new jobs per month from January through April. The payroll figure for June was revised to –13,000, the first negative point since 2020.

Perhaps most surprising is that the preliminary payroll revisions that the Bureau of Labor Statistics (BLS) calculates each year suggest that there were 911,000 fewer jobs than originally believed over the 12 months prior to March. This payroll revision is large by historical standards, exceeding the 902,000 figure from 2009. The BLS will finalize these statistics in early 2026.

In light of this data, understanding the labor market requires a broad perspective:

• Weaker payrolls and still-low unemployment seem like a contradiction, but this combination can occur when the supply of workers shrinks. In other words, if fewer people are looking for work, the unemployment rate can remain steady even as fewer hires are made.
• This is what Fed Chair Jerome Powell called a "curious balance" between weakening demand and declining labor supply. He and other officials have emphasized that this "likely reflects a decline in the growth of the labor force, due to lower immigration and lower labor force participation."
• The supply of labor is an important factor when trying to understand the current economy. The labor force participation rate measures the working-age population employed or looking for work – at 63.2%, it has been on a downward trajectory for decades. Combined with a decreased immigrant population, these factors reduce the supply of workers. Following a peak at 53.3 million in January 2025, the overall immigration population fell to 51.9 million as of June 2025.
• This labor market weakness differs from historical patterns where employment served as a lagging indicator, confirming recessions that were already underway rather than predicting them. During the 2008–2009 financial crisis, unemployment rose from 5.0% to 10.0% after the recession had begun, while the 2020 pandemic saw unemployment spike from 3.5% to 14.8% as lockdowns took effect. In both cases, job losses accelerated after economic distress was already evident.

While previous recessions saw dramatic spikes in unemployment that confirmed economic downturns, the current environment reflects less dramatic structural changes in labor supply. Still, job gains have slowed, adding to economic risks. For investors, this reinforces the importance of maintaining diversified portfolios that can weather changing economic scenarios rather than trying to time market movements based on individual data points.

6. Tariffs Have Not Definitively Raised Prices Yet

Inflation, the other side of the Fed's dual mandate, remains stubbornly above the 2% target and, in some months, has been trending in the wrong direction. The biggest concern among economists is whether tariffs will raise consumer prices. Recent data suggest that this has not yet occurred to the extent that many originally feared. Understanding whether trade policies will create temporary price adjustments or sustained inflationary pressure remains an open question.

To help clients understand recent inflation developments:

• Recent inflation data, shown in the following chart, depict a mixed but manageable picture. Year-over-year inflation reached 2.9% in August according to the Consumer Price Index, up from July's 2.7%. Core CPI, which excludes food and energy prices, rose 3.1% in the year to August, considerably above the Fed's target.
• Inflation trends between goods and services have diverged, with goods inflation accelerating while services inflation has decelerated. Still, at only 1.5% year-over-year, core goods inflation has not yet reached worrisome levels.
• Shelter costs have been the primary driver of recent inflation increases, rising 3.6% over the last year. Food prices also climbed 3.2% from a year earlier. One measure of 'supercore inflation' excludes shelter from core CPI to better understand the underlying inflation trends. This measure has accelerated to 2.7%, which is a higher but still manageable level.
• The Personal Consumption Expenditures index, the Fed's preferred inflation measure, has painted a similarly moderate picture. Like CPI, these are above the Fed's target but have not returned to pandemic-era levels.
• Although Fed Chair Jerome Powell has emphasized that tariff effects on prices will likely be "relatively short lived – a one-time shift in the price level," he has also noted that "one-time" doesn't mean "all at once". It will take time for tariff increases to work through supply chains and distribution networks.
• Interestingly, corporate earnings calls are reflecting reduced inflation concerns. According to FactSet, the number of S&P 500 earnings calls citing "inflation" reached its lowest level in almost five years, suggesting businesses are becoming less worried about pricing pressures.

While there is still uncertainty about the degree to which trade policy will affect consumer prices, current inflation rates have not jumped in an uncontrolled way. This has allowed the Fed to focus more on the labor market, resulting in rate cuts.

7. Consumer Sentiment Remains Weak, Reflecting A 'Two-Speed' Economy

Consumer spending remains resilient overall, but it's highly concentrated among high earners. This split between strong activity at the top and weakness farther down the income scale has been referred to as a "two-speed" economy. In practice, this means that while wealthier households continue to spend freely, many others are pulling back, creating very different experiences of the same economic environment. Consumer sentiment lags market performance not because households are irrational, but because they experience the economy through daily expenses, while markets are focused on pricing in future corporate profitability – two entirely different economic realities.

While consumer pessimism and debt concerns merit attention, record household wealth levels and continued spending among higher-income segments suggest the economy remains fundamentally stable. The data highlight both sides of this divide:

• Perhaps most telling is how consumer spending has become increasingly concentrated among high earners.
• The current bifurcated consumer landscape reveals why traditional economic indicators may not fully capture how people feel, particularly for those in lower income brackets who face genuine financial pressures despite strong overall market performance.
• Debt levels provide additional context for consumer financial health. Total household debt increased by $185 billion to hit $18.39 trillion in the second quarter, while the 4.4% aggregate delinquency rate suggests some households are experiencing genuine financial strain.

This chart shows the degree to which consumer sentiment has plummeted as households grapple with economic issues. The challenge for investors is understanding that traditional economic measures may not fully capture how different income groups experience current conditions. Rather than dismissing consumer sentiment as misguided, it is important to recognize these legitimate financial pressures.

8. The "One Big Beautiful Bill" Adds Tax Clarity

Structural challenges continue to be a source of concern for long-term investors. With the national debt and deficit already uncomfortably high, it is important to consider how today's policies shape the long-term picture.

This carries even greater relevance now that the One Big Beautiful Bill (OBBBA) has been signed into law. On the one hand, the new tax and spending act makes permanent many popular tax provisions while adding new benefits that will shape household finances for years to come, avoiding what could have been a dramatic 'tax cliff'. On the other hand, those same provisions are forecast to add further pressure to debt and deficit levels.

To support clients with questions on these big topics, it can help to frame the bill's impact in politically neutral terms:

• At an individual level, the new bill provides substantial tax relief across multiple areas. Current tax rates and brackets from the Tax Cuts and Jobs Act are now permanent, eliminating uncertainty that had loomed over financial planning. The standard deduction increases to $15,750 for single filers and $31,500 for married couples filing jointly.
• Perhaps most significantly for high-tax states, the cap on State And Local Tax (SALT) deductions jumps from $10,000 to $40,000, growing by 1% annually through 2029 before reverting to $10,000 in 2030. Estate tax exemptions will also increase to $15 million for individuals and $30 million for couples in 2026, while the Alternative Minimum Tax (AMT) exemption becomes permanent with higher thresholds.
• However, these tax benefits come with significant fiscal costs. The Congressional Budget Office estimates the bill will add $3.4 trillion to the deficit over the next decade, raising questions about long-term sustainability. This challenge is compounded by currency trends: the dollar fell 10.7% in the first half of 2025 – its worst performance in over half a century.

The combination of high national debt levels, growing deficits, and dollar weakness has raised concerns about America's fiscal trajectory. The following chart highlights the steady rise in the national debt as a percentage of GDP, the ideal way to measure the size of the debt since a larger economy can support greater borrowing. While the dollar's status as the world's primary reserve currency provides a financing cushion – allowing the US to borrow more easily than other nations thanks to strong global demand for dollars – there are limits to this advantage.

The dollar's dominance in global trade, central bank reserves, and international transactions provides significant support, but credibility still matters. Maintaining reserve currency status depends on sound fiscal and economic policies that reassure global investors. Rising debt-to-GDP ratios and demographic pressures from an aging population create long-term challenges that may ultimately test the limits of that privilege.

For investors, these fiscal policy changes highlight the importance of balancing opportunities from new tax benefits with the risks of long-term instability. Navigating this environment calls for disciplined portfolio management and a focus on long-term fundamentals rather than short-term policy shifts.

9. Bond Market Volatility Is At A Three-Year Low

Following the challenging period from 2020 to 2022 when inflation pressures caused both stocks and bonds to decline simultaneously, fixed income markets have entered a period of relative calm. While the bond market still recovers from those challenging times, bond volatility has fallen to its lowest level in more than three years, considerably below long-term averages. This represents a welcome development for investors who experienced the rare occurrence of bonds experiencing a large drawdown during the 2022 inflationary period. This chart shows this pattern using the ICE BofAML MOVE index, which is often viewed as the bond market equivalent of the stock market's VIX index.

• The Fed's shift toward rate cuts has provided support for existing bond holders. Economic uncertainty, which peaked earlier this year, has also retreated.
• This combination has restored bonds to their traditional role as portfolio stabilizers, offering both income generation and potential diversification benefits alongside equity holdings. On the positive side, bond yields remain at healthy absolute levels by historical standards, providing meaningful income generation potential.
• Investors are also demonstrating greater willingness to take on credit risk, evidenced by tightening credit spreads across the corporate bond market. High-yield corporate bond spreads, which measure the additional yield investors demand over Treasury securities, have narrowed significantly from crisis levels. While this compression reflects improving credit fundamentals and a supportive refinancing environment for corporate issuers, it also means investors are currently demanding relatively little compensation for default risk.

For fixed income investors, today's calm environment presents both opportunities and risks. While low volatility is generally beneficial for existing bondholders, conditions could change quickly if economic growth slows or credit quality worsens. The reduced compensation for credit risk relative to historical norms means that corporate bonds may be less attractive on a risk-adjusted basis than during periods of wider spreads. At the same time, persistent inflation pressures from tariffs and other policy changes could disrupt the current stability in bond markets.

Against this backdrop, maintaining appropriate diversification across bond sectors and credit qualities is essential. Spreading exposure more broadly, rather than concentrating exclusively in areas that have performed well recently, helps ensure portfolios are positioned to benefit from today's relative calm while preparing for future volatility.

10. For Alternatives, Gold Continues To Attract Attention

While stocks and bonds remain the core of a portfolio, alternative assets can also play a role. Among these, gold has captured significant investor attention through 2025 as prices continue reaching new record highs. While gold's recent rally reflects several compelling factors, understanding its role remains crucial for achieving financial goals.

For clients who want guidance on gold, the following key points can help:

• Gold prices have risen well above $3,700 per ounce, reaching 36 record highs so far this year. Recent gold strength stems from multiple converging factors. When interest rates fall, non-yielding assets like gold become relatively more appealing since the opportunity cost of holding them decreases.
• Geopolitical tensions have reinforced gold's traditional role as a safe-haven asset during periods of economic uncertainty. Investors often turn to gold when global conflicts, trade disputes, or political instability create market volatility. Additionally, weakness in major currencies, particularly periodic declines in the US dollar, has made gold more attractive to international investors and supported higher prices across global markets.
• Central banks worldwide are also on track to buy 1,000 metric tons of gold in 2025, continuing a trend of substantial accumulation that provides strong support for gold prices. This significant demand reflects gold's enduring role as a monetary reserve asset and hedge against currency devaluation.
• Unlike stocks and bonds, gold generates no income through dividends or interest payments, relying entirely on price appreciation for returns. This fundamental limitation becomes particularly important when evaluating gold's historical performance against other asset classes.
• During the global financial crisis, gold provided portfolio protection where many other assets struggled. However, diversified stock-and-bond portfolios have generally achieved superior wealth-building outcomes. The following chart shows that while the S&P 500 experienced many drawdowns over the past two decades, it has performed better than gold over the full period.

For long-term investors, gold's primary value likely lies in the potential for portfolio diversification rather than wealth accumulation. Its tendency to move independently of stocks and bonds can provide stability during market stress, potentially reducing overall portfolio volatility. However, this potential diversification benefit does not mean it should be a significant holding. Successful long-term investing requires maintaining perspective on how individual assets contribute to overall financial objectives rather than chasing recent performance.

Clients Need Guidance in Uncertain Markets

These market dynamics create both opportunities and challenges that require thoughtful navigation. While the S&P 500 has reached new all-time highs and corporate earnings continue to exceed expectations, the underlying economic landscape remains complex. The 'two-speed economy' highlights the gap between thriving market performance and consumer sentiment that remains pessimistic. Add in AI-driven concentration risk and persistent fiscal concerns, and it becomes clear why maintaining a long-term perspective matters more than ever.

Perhaps most importantly, 2025 has reminded us that staying invested through uncertainty pays off. Clients who stayed the course despite tariffs, Fed concerns, and geopolitical tensions have been rewarded.

Looking ahead to the final quarter of the year (Q4 2025), these trends will likely continue to evolve. The real key is that successful investing isn't about predicting which theme will dominate next, but about building portfolios that can benefit from multiple scenarios while managing risk. Whether it's the continued AI revolution, the Fed's policy decisions, or ongoing fiscal debates, advisors will continue to play a critical role in helping clients stay focused on their long-term goals rather than reacting to the latest headlines.