Executive Summary

• Resilient Market Finish: US equities capped 2025 with double-digit returns (S&P 500 +16%), supported by broadening participation beyond the “Magnificent Seven.”
• International Equities Lead the Way: Non-US markets led by emerging markets rallied, signaling a recovery in risk appetite beyond just domestic US stocks.
• Fed Accommodation Continues: The Federal Reserve’s preemptive rate cuts to support labor markets is actively cushioning the economy against perceived recessionary pressures.

• Labor Market Cooling: Hiring velocity has slowed significantly and unemployment is ticking upward, signaling a shift in economic momentum.¹
• Consumer Strain (“K-Shaped” Impact): Persistent higher price levels and depleted savings are creating noticeable headwinds for low- and moderate-income Americans.
• Policy & Trade Volatility: Unpredictable US trade tariffs and global policy shifts continue to inject uncertainty into the economy and markets.

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Executive Summary 

Amidst ongoing US policy unpredictability and signs of a softening labor market, the US economy and markets have continued to demonstrate notable resilience. A long-awaited Federal Reserve interest rate cut, and strong corporate earnings supported equity and credit markets – yet policy shifts, elevated stock valuations, and ongoing geopolitical tensions continue to pose potential headwinds. Looking back on the third quarter and ahead to the remainder of 2025 and the new year, several trends seem to be emerging.

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After considerable volatility from late February through April, markets have stabilized and have reached new record highs, seemingly unaffected by persistent uncertainty. Although unpredictable tariff policy, unprecedented executive actions, and a budget bill projected to dramatically expand the federal deficit remain ongoing concerns, market volatility in response to these developments has diminished.

Firings of senior officials – including those responsible for overseeing the collection and reporting of key economic and statistical data – could threaten the integrity and reputation of the organizations along with the financial market’s confidence in the data they provide. Even before these dismissals, we believe there was a noticeable decline in the quality of inflation statistics, with the Bureau of Labor Statistics increasing its use of estimates from a historical average of 10% to 30%.¹ As we examine the economy and markets, we note that the relationship between data and market responses may be evolving.

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As we seek to update you on the state and the economy, we recognize that many of our clients and colleagues have limited their news consumption since the election. We are an engaged community, many of us on edge over the chaos and potential harm we may experience over the next four years. We pledge to continue keeping you updated on our fact-based interpretations of the economy and markets. We will continue to add our analysis about how the facts impact our themes of climate solutions and the environment, racial and gender equity, sustainable and regenerative agriculture, and community wealth building.

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As we write, the 2024 general election in the United States is less than two weeks away, and values-aligned investors are keenly aware of the social and environmental issues that are on the line. With this letter, we aim to put the economy and markets in context of the upcoming election, and to put this election in some historical context as well.

The US economy continues to remain resilient. In the second quarter the economy grew at an annualized rate of 3%, accelerating from an upwardly revised 1.6% expansion in the first quarter. This is in line with the 3% year-over-year GDP growth as strong consumer spending driven by a resilient labor market and wage growth continues to support the US economy. Inflation pressures continued to ease, allowing the Federal Reserve greater confidence to shift their primary focus from lowering inflation to supporting the labor market. In September, they lowered interest rates by 50 bps (0.5%), making the first rate cut in four years.

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