I hope you had a great Summer and are looking forward to Fall.
The third quarter delivered solid gains:
- Stocks rose all three months, and are now up five months in a row. The S&P 500 climbed 7.8% in the quarter.
- September was unusually calm: Not one day closed up or down more than 1%.
Looking Ahead: October has a reputation for volatility. Some of the market’s largest drops (e.g., 1929, 1987, and 2008) happened this month. After a long stretch of strength this year, a short-term decline wouldn’t be surprising.
The economy remains resilient, despite tariff headwinds:
- U.S. GDP grew 3.8% in Q2, the fastest pace in nearly two years.
- Corporate earnings are on track to rise 12% year-over-year, the third straight quarter of double-digit growth.
- Unemployment sits at 4.3%, well below recessionary levels.
- Retail sales are still climbing, showing strong consumer spending.
Big Picture Theme: Artificial Intelligence (AI)
AI has become the economic story of the decade. Tech giants are racing to secure the computing power and talent needed to build the most advanced models. Here are a few eye-catching stats (emphasis mine):
- “AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth since ChatGPT launched in November 2022.” (JPMorgan)
- “The AI boom has contributed 40% of [America’s] GDP growth over the past year—a staggering figure for a sector that accounts for just a few percent of total output.” (The Economist)
- “There are now 498 AI ‘unicorns,’ or private AI companies with valuations of $1 billion or more, with a combined value of $2.7 trillion, according to CB Insights. Fully 100 of them were founded since 2023. There are more than 1,300 AI startups with valuations of over $100 million. (CNBC)
For investors, this underscores the importance of diversification. Chasing hype with concentrated bets can be risky, but ignoring innovation is also a bad idea. Spreading your investments helps ensure you own the eventual winners that rise to the top.
- 📈 13 Years of All-Time Highs – “We’ve now seen 13 straight years with at least 1 all-time high, surpassing the epic 1989-2000 streak (12 years).”
- — Charlie Bilello, Chief Market Strategist, Creative Planning
- 📊 Sector Performance in 2025 – “Technology and communication services (basically tech) both experienced massive drawdowns earlier this year [down 26.2% and 22.7%] but are now each sitting on 20%+ gains for the year.“
- — Ben Carlson, Director of Institutional Asset Management, Ritholtz Wealth Management.
- 4️⃣ The Fourth Quarter Tends to be Positive – “The fourth quarter historically has been the best quarter of the year, higher 80% of the time and up 3.8% on average.“
- — Ryan Detrick, Chief Market Strategist, Carson Group
- 🚀 More IPOs – “About $7.6 billion worth of I.P.O’s priced in the US in September [Klarna, Netskope, Stubhub, were a few], making it the biggest month for such deals since 2021. — Bloomberg.
- The strength seen in September suggests a potential turning point in the IPO market, which has been languishing for some time.
- 💸 Safe Retirement Withdrawal Rates – In personal finance news, many people are familiar with the concept of the 4% rule. It states that a sustainable withdrawal rate from your portfolio is 4%.
- For example, if you have one million dollars, you can withdraw $40k per year, and increase that each year for inflation. It’s a simple, back-of-the envelope calculation that ignores taxes, Social Security income, and much more, but it turns out that the “4%” has been revised and increased to 4.7%.
- “The chart shows the percentage of retirees that did not run out of money over 30 years based on initial withdrawal rate.
- As you can see, not a single retiree ran out of money with a 4.68% withdrawal rate (which Bengen rounds to 4.7%):”
- For retirees, the increase offers a bit more flexibility. But keep in mind that this is a very high-level rule, and personal circumstances still matter.
- 💸 Forced Roth 401(k) Savings For Those Over 50 – In more personal finance news, employees age 50 and up are allowed to contribute an extra $7,500 per year to their 401(k), on top of the standard $23,500 limit for 2025. This is called a “catch up” contribution.
- Starting next year, workers age 50+ who earn over $145,000 must make their 401(k) catch-up contributions after tax (within Roth accounts).
- Also noteworthy: A special “super catch-up” option allows people between 60 and 63 years old to increase their catch-up contribution to $11,250.
- ％ Mortgage Rates: The Fed’s recent 0.25% interest-rate cut doesn’t automatically mean mortgage rates will fall much. Mortgage rates depend more on long-term bond markets, inflation expectations, and lender costs. So we could see only a small change, not a big drop.
- ⏳ Homes Sell At Slowest Pace in a Decade – “The typical home that went under contract in July was on the market for 43 days. That’s up from 35 days a year earlier and is the longest span for any July since 2015.”
- — Lily Katz, Data Analyst, Redfin
- $ Housing Price Declines – In July, “home prices fell in 39 of the 50 most populous U.S. metro areas on a seasonally adjusted basis, month over month…The highest number of metros to post a monthly decline going back to 2012.”
Life
- Financial Advice for Kids – This is a great letter from Morgan Housel to his son. Written back in 2015, it’s still well worth a read.
- 👶 Daycare Costs – San Francisco, San Mateo, and Santa Clara County have some of the most expensive daycares in the country.
Quote of the Month
“Wealth has an interesting way of distorting our perceptions and changing our motivations. Even people who are objectively successful can be made to feel otherwise.
If you want to counteract these pernicious effects, then you will need to remember who you are and what you value. Finding ways to enjoy your money without identifying with it should be your end goal. That’s how you protect your wealth from yourself.”
– Nick Maggiulli
As always, please reach out if you have any questions or would like to connect.