October 2025 Economic and Investment Update

Cooling Economy, Warming Markets

Welcome to our October 2025 Economic and Investment Update. The U.S. economy is catching its breath. It is not stumbling, just slowing to a more sustainable pace. Inflation is easing, the Federal Reserve has shifted to a gentler stance, and the job market, while softer, still shows resilience. Together these shifts are creating a more stable foundation heading into 2026.

The Labor Market Is Loosening in a Good Way

After two years of rapid hiring and rising wages, the unemployment rate has moved up to about 4.3 percent. Job openings have come down to roughly 7 million, still healthy by historical standards. For many business owners, that is welcome news. Labor shortages are easing, wage pressures are calming, and productivity investments, especially in automation and artificial intelligence, are beginning to pay off.

The NFIB Small Business Sentiment Index remains near 90, a sign of cautious optimism on Main Street. Small businesses are adjusting to higher costs and interest rates, but they are not pulling back. They are getting more efficient.

The Fed Is Letting the Economy Breathe

The Federal Reserve trimmed rates this fall to 4.00 to 4.25 percent, signaling confidence that inflation is cooling without choking growth. Policymakers are aiming for a soft landing with steady prices and slower, more balanced growth.

Lower borrowing costs are already helping. Mortgage rates have eased, credit spreads have narrowed, and corporate borrowing has picked up again. That easing in financial pressure is exactly what the Fed hoped for, enough support to sustain expansion without reigniting inflation.

The Market View: Cautious Optimism with Structure

Equity markets have reflected that same steady optimism. The S&P 500 continues to build on its gains, and we believe it can reach 7,000 by the end of the year if earnings trends remain stable and liquidity stays supportive.

This is not a speculative rally. Corporate America is growing leaner and smarter. Companies across industries are using artificial intelligence to streamline operations, cut redundant costs, and improve decision-making. It is not about replacing workers, it is about removing inefficiency.

We do not believe AI is a bubble. Valuations are high, but so are the productivity gains. The bigger story will unfold in 2026 and beyond, when AI-enabled revenue growth starts to appear in company earnings reports.

The Santa Claus Setup

The final stretch of the year often brings a dose of good cheer. Historically, the so-called Santa Claus rally, which includes the last five trading days of December and the first two of January, has produced positive returns in about 80 percent of years, with an average gain near 1.4 percent.

If inflation continues to cool and the Fed maintains its current tone, there is room for a similar pattern this winter.

What Could Go Wrong

A few risks are worth keeping on the radar.

New tariffs and rising costs could make goods more expensive again and slow the progress we have seen on inflation. Household debt is climbing, and higher delinquencies on credit cards and auto loans show that low-income consumers are feeling the strain. The recent default by a major auto retailer was a reminder that easy credit and high inventories can turn quickly when demand softens. In commercial real estate, office vacancies remain high, and refinancing debt is getting harder, which could pressure smaller banks. On the government side, heavy Treasury issuance continues to push more bonds into the market. If demand does not keep up, yields could rise again and take some shine off stocks.

Our View

We remain confident and constructive. The economy is still expanding, productivity is improving, and company profitability is quietly rebuilding. For investors, this backdrop rewards balance. Steady income from high-quality bonds, disciplined exposure to equities, and thoughtful participation in innovation.

Progress, not perfection, is what drives long-term success. And we are seeing plenty of progress already.

Thanks for reading our October 2025 Economic and Investment Update. If you’re a business owner and would like to talk about how we use financial planning to navigate economic and investment ups and downs, Contact Portus Wealth Advisors today.

Call Us: 704-936-0084