Q3 2025 Economic & Investment Chart Book

The Federal Open Market Committee (FOMC) is forecasting roughly 2% annual GDP growth through 2025 and into 2026 and 2027. Its forecasting accuracy historically has been poor, but it is helpful to know what they think as it will influence future Fed rate policy.

Source: The FOMC “Summary of Economic Projections,” as of June 18, 2025. There is no guarantee that any projection, forecast, or opinion will be realized. Actual results may vary.

The initial estimate for Q2 GDP growth came in at 3%, above analysts’ forecasts. Any negative effects from the ongoing tariff uncertainties have yet to appear in the data, but it is still early. We will know more about any positive or negative effects as we approach the end of the year. For now, the economy is in solid shape.

Source: The Atlanta Fed “GDPNow” Forecast, as of July 29, 2025. Actual results may vary.

The “betting markets” are forecasting modest (1.5%) growth for all of 2025 but a declining probability of a recession during the year.

Source: Kalshi, as of July 28, 2025. All forecasts are estimates and subject to change as more data come in.

As expected, and despite the vitriolic attacks by the Trump administration, the Fed did not cut rates in its July FOMC meeting. The market fully expects a rate cut in September, however, and an additional cut before year-end. As always, it will depend on the data. Trump will undoubtedly replace Powell with a “dove” next May.

Source: The Atlanta Fed  “Market Probability Tracker” forecast as July 24, 2025. All forecasts are estimates and subject to change as more data come in.

Non-US GDP estimates remain muted but generally positive. The longer-term tariff effects are still unknown. Promises of increased defense spending should boost European economic activity.

Source: BNP Paribas, as of July 25, 2025. There is no guarantee that any projection, forecast, or opinion will be realized. Actual results may vary.

The labor market remains remarkably stable but perhaps shows signs of cooling. Remember that, historically, 5% unemployment was considered a “fully employed” economy. We have been below that level since mid-2021.

Source: St. Louis Fed (FRED), through June 2025.

Job openings are generally trending downward with some monthly volatility. The hires and quits rates remain stable. These trends suggest a resilient but perhaps cooling labor market.

Source: St. Louis Fed (FRED), through February 2025.

This chart shows the most contemporaneous of the labor metrics, as they comes out weekly. We use the 4-week moving averages to smooth out weekly volatility. What we see is remarkable stability in initial claims (people are not losing current jobs) but perhaps a trending uptick in continuing claims – new jobs are getting more difficult to come by.

Source: St. Louis Fed (FRED), through July 12, 2025.

Inflation is trending in the right direction but remains above the Fed’s targeted 2% annualized growth rate, and the last few “prints” have been trending back upward. Despite Trump’s attacks, the data do not indicate an overwhelming need to be aggressive with rate cuts.

Source: St. Louis Fed (FRED), data though June 2025.

Economic Outlook Summary

• The US and global economies remain positive with steady growth rates. Although multiple trade deals (but not treaties, which require legislative approval) have been agreed to, it is still too early to know the longer-term impact of the ongoing tariff negotiations and trade policies.
• The Trump administration is strongly “jawboning” the Fed for lower rates, including talking about removing Jerome Powell as Fed Chair. So far, the Fed is showing independence and its usual “data dependency” but the political pressure will mount, especially since the Fed did not cut rates in July. We remain firm in our conviction that the Fed needs to remain independent and “data dependent” and not bow to external political pressure.
• The recently passed budget bill includes a variety of policies that should positively impact economic growth, the most important of which was the retention of the 2017 tax cuts, which have now been made permanent. Unfortunately, the bill will also do nothing to slow down the explosive growth of the Federal debt and deficit.
• Trump has secured seemingly favorable deals with several countries, with China and Canada remaining the most important countries still “in negotiation.”
• The “known unknowns” remain geo-politics, specifically the ongoing Russia/Ukraine and Israeli wars, and tensions in the broader Middle East, The bombing of Iran’s nuclear facilities was a huge geo-political event and yet had very little impact on global markets. Here in the US, that is partially because we are no longer as dependent on Mideast oil as we once were.
• The 2026 mid-term election season will soon begin. Expect (and then mostly ignore) a great deal of political hyperbole along the way.

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Global stocks have regained all lost ground from the “Liberation Day” disruptions, and then some, with some markets reaching new all-time highs. In fact, there is a sense of “euphoria” in the markets today, which always gives us pause.

Source: Ycharts, YTD performance through July27, 2025. You cannot invest in an index and past performance is no guarantee of future results.

One interesting thing to note has been the resurgence in both large cap value stocks (left) and small cap stocks (right) over the past several months. Large cap growth still leads the way, but diversification still matters.

Source: Ycharts, (left chart), 12-month data through July 27, 2025; (right chart), 3-month data through July 27, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Mega-cap tech stocks (excluding Apple and Amazon) have more than regained their losses following the “Liberation Day” disruptions. The Artificial Intelligence trade is still very much in play, but these companies will need to continue to post robust earnings growth to maintain their lofty valuations.

Source: Ycharts, 1-year data through July 27, 2025. You cannot invest in an index and past performance is no guarantee of future results.

As mentioned, US investors are benefitting from a declining dollar on their non-US investments. This is one reason we remain committed to global diversification.

Source: Ycharts, YTD data as of July 27, 2025. You cannot invest in an index and past performance is no guarantee of future results.

The dollar has been declining since January. This serves the Trump administration as it makes US products more competitive overseas. We expect this trend to continue.

Source: Ycharts, 1-year data through July 27, 2025. You cannot invest in an index and past performance is no guarantee of future results.

After spiking following the “Liberation Day” tariff announcements, equity market volatility has declined steadily downward to historically low levels. This may signal a troubling level of complacency by investors.

Source: Ycharts, YTD data through July 29, 2025. You cannot invest in an index and past performance is no guarantee of future results.

After slipping briefly into negative territory following “Liberation Day”, market momentum has once again returned strongly into positive territory, as measured by the 50-day / 200-day moving averages.

Source: Ycharts, 3-year data through July 29, 2025. Past performance is no guarantee of future results.

The mega-cap tech stocks continue to dominate the market capitalization of the overall S&P 500 index – representing almost 35% of the index. Likewise, the lofty valuations of these stocks brings up the P/E ratio of the entire index. These stocks will have to continue to post robust earnings growth to maintain their valuations.

Source: Yardeni Research, as of July 30, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Q2 earnings reported to date (top) are positive, with both revenue and earnings “beat rates” above historical averages. Earnings are expected to increase steadily as we move through the next few quarters. Importantly, the earnings for technology stocks (bottom) are also expected to increase – which is necessary to maintain their current valuations.

Source: Zacks Investment Research, as of July 29, 2025. Green bars are earnings and orange bars are revenues. Solid bars are actual results, while hatched bars are estimates and, therefore, subject to change.

Outside the US, earnings growth estimates are muted but positive (ex-India, which is expected to show solid growth).

Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Next 12 months consensus estimates are based on pro-forma earnings and are in U.S. dollars. Past performance is not a reliable indicator of current and future results. (Right) The purple lines for EM and China show 20-year averages due to a lack of available data. Guide to the Markets – U.S. Data are as of June 30, 2025.

The mega-cap tech stocks continue to drive the valuation of the overall S&P 500 index upward. Without them, the S&P 500 is expensive but trading within historical valuation levels. SMID cap stocks are trading well within historical levels, and the valuation differentials to large cap are as wide as they have been in decades.

Source:  Yardeni Research, through July 24, 2025. You cannot invest in an index and past performance is no guarantee of future results.

We see a similar valuation differential between large cap growth and value stocks, though the spread is narrowing slightly as value has performed well over the past twelve months.

Source:  Yardeni Research, through July 24, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Likewise, the valuation differential between US and non-US stocks is as wide as it has been in more than twenty years, despite the outperformance by non-US stocks so far in 2025.

Source:  Yardeni Research, through July 29, 2025. You cannot invest in an index and past performance is no guarantee of future results.

There are no “screaming buys” in global public equities from a valuation perspective. There appears to be a relative value opportunity in small cap stocks, both domestically and outside the US.

Source:  Morgan Stanley Eaton Vance “The BEAT”, June 2025. You cannot invest in an index and past performance is no guarantee of future results.

Public Equity Market Summary

• After falling following the “Liberation Day” announcements in early April, global stock markets have more than regained their losses. This is especially true in the US and for most of the mega-cap tech stocks. US markets seem to be hitting all-time highs on an almost daily basis.
• Earnings and earnings growth expectations are solid. While we think the market may be overly complacent, we seem to be in somewhat of a “Goldilocks” market environment.
• We believe it is still too soon to determine the longer-term effects of ongoing tariffs and trade negotiations but to date, neither the economy nor the markets seem to be suffering any negative effects, despite the uncertainty.
• There is nothing that looks “cheap” by valuation standards, and investors should manage expectations accordingly. For patient investors, there may be some relative value in both US and International small caps.
• Patient and longer-term investors may want to consider the relative valuation opportunities available in US large cap value and non-US stocks. We continue to like US SMID cap stocks from a strategic perspective, but believe it is too soon for heavy reallocation there. There’s too much uncertainty over economic growth and interest rates – two important drivers of SMID cap performance.

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The yield curve has been incredibly “quiescent” for much of the past three years (top), and even more so YTD in 2025 (bottom). There has been little to no movement despite ongoing economic and geo-political “noise.” The 2-year rate has drifted downward ahead of anticipated Fed rate cuts.

Source: Ycharts, as of July 29, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Ignoring the brief spike following “Liberation Day”, credit spreads remain as tight as they have been over the past ten years. We believe the pressure on both rates and spreads is upward, not downward as we move through the remainder of the year.

Source: Ycharts, 10-year data as of July 29, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Given the flatness of the yield curve, there is no reason for investors to take on unnecessary duration (interest rate) risk.

Source: WisdomTree, as of July 29, 2025. This does not represent any endorsement of any products, and is for illustration purposes only. You cannot invest in an index and past performance is no guarantee of future results.

Rates and Credit Summary

• Given the current levels of real rates and credit spreads, investors can once again generate real income from their bond portfolios.
• Corporate balance sheets are generally in solid shape, so coupons should be reasonably safe, although downgrades, delinquencies, and default rates are increasing. They currently do not appear problematic.
• That said, we believe the pressure on rates and spreads is upward from current levels. It is unclear what will happen to the longer-end of the curve if/when the Fed begins to cut rates. As a result, we are not overly positive on the total return potential available in most public income sectors.
• We see no reason to take on unnecessary duration risk. We continue to recommend a balanced approach between short-dated and longer duration exposures to generate yield and mitigate interest rate risk.
• For investors seeking higher yield from their income allocations, we much prefer private credit for those investors who can access that space. We believe private credit may offer better due diligence, pricing, and deal structure.

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Forecasted returns for the traditional “60/40” portfolio suggest the need for non-traditional investments, including alternatives and private investments.

Source: JP Morgan “Guide to Alternatives”, as of May 31, 2025. You cannot invest in an index and past performance is no guarantee of future results

Here’s a reminder of why the inclusion of alternative and private investments can be beneficial to the overall risk/return profile of diversified portfolios.

Source: JP Morgan “Guide to Alternatives”, as of May 31, 2025. You cannot invest in an index and past performance is no guarantee of future results

Historically, hedge funds have performed better in rising volatility environments – a market regime we believe we may be entering.

Source: JP Morgan “Guide to Alternatives”, as of May 31, 2025. You cannot invest in an index and past performance is no guarantee of future results.

Hedge funds continue to do their job, which is to not outperform a bull equity market, but deliver consistent returns and improve portfolio diversification.

Source: FEG, through June 2025. You cannot invest in an index and past performance is no guarantee of future results.

Historically, hedge funds have been excellent sources of diversification during turbulent market regimes.

Source: JP Morgan “Guide to Alternatives”, as of May 31, 2025. You cannot invest in an index and past performance is no guarantee of future results.

We continue to like private credit for those investors who can access it. Although some areas (e.g., direct middle market lending) are getting somewhat “crowded”, we believe quality managers can still find attractive deals at appropriate yield levels. We also believe there are interesting opportunities in more specialized or “niche-y” private credit sectors.

Source: JP Morgan’s “Guide to Alternatives”, as of May 31, 2025. Private investments may carry additional liquidity and leverage risks and are often limited to more sophisticated investors accordingly. Past performance is no guarantee of future results.

We continue to like private equity for those investors who can access it. We are especially interested in sports investments, secondaries, energy infrastructure, real estate, and GP Stakes at the current time. Below highlights some of the discounts that are available in the secondaries market.

Source: JP Morgan’s “Guide to Alternatives”, as of May 31, 2025. Private investments may carry additional liquidity and leverage risks and are often limited to more sophisticated investors accordingly. Past performance is no guarantee of future results.

Alternatives and Private Markets Summary

• Given market valuations in the public markets – and the current global disruption from the April 2 tariff announcements – we continue to like the private markets for those investors who can access them.
• Sports Investing: This entails lower correlated strategies, a growing opportunity set, and a differentiated solution. We have been active in this space and continue to see additional opportunities.
• Secondaries: The traditional “exit ramps” for many private equity strategies – the IPO and M&A markets – have been less active for the past few years. Thus, as sponsors seek to generate liquidity for distributions and/or to launch new funds, we continue to believe there are attractive opportunities available in the secondaries space, as many strategies are at interesting discounts.
• GP Stakes: These are funds buying minority interests in other funds. It’s a rapidly growing space as the selling funds seek permanent expansion capital. Investors receive a pro rata share in management fees, upside in the underlying investments, and in the growth of the sponsor fund itself. We have active searches on in this area.
• Infrastructure: We’re specifically interested in energy infrastructure, due to the exploding demand for energy, transmission, and AI data centers.
• Real Estate: We believe this sector is poised for a comeback following its “beat down” during COVID. We currently are in searches focusing on growth/value add equity solutions.
• Private Credit: We have good “mainstream” solutions already on the platform, so we are exploring more “niche-oriented” strategies going forward.

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Here are the Certuity Asset Allocation Guidelines, as of June 30, 2025. Valuations are still expensive across the globe. Fow now, global markets are trading in somewhat of a “Goldilocks” environment.

Source: Certuity, as of June 30, 2025. Evaluations are subject to change as market conditions change. This is for illustration purposes only and does not represent investment advice. All evaluations are on a relative and not absolute basis. Red = a negative relative evaluation; gray = a neutral relative evaluation; green = a positive relative evaluation. You cannot invest in an index, and past performance is no guarantee future results.

Our Current Model Portfolio Guidelines

• We have shifted back to a preference for stocks vs. bonds. We believe there is muted total return potential in the public fixed income market right now.
• Market conditions are in somewhat of a “Goldilocks” environment. Earnings are solid and expected to improve over the next several quarters. That said, valuations are high across almost all major global markets, especially in the mega-cap tech stocks.
• We believe longer-term and disciplined investors should consider allocating to US large cap value and non-US stocks.
• We are strategic allocators of US SMID cap, but the current market environment – especially in view of interest rates and economic growth – gives us pause for now.
• We much prefer private credit for those investors who can access it and are seeking enhanced yield.
• We continue to like MLPs but are otherwise neutral on the broader public real asset sector.
• We believe there continue to be interesting opportunities in the private markets for those investors who can access them. We have active searches ongoing in private credit, sports investing, infrastructure, secondaries, GP stakes, and real estate.

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