“Headlines, in a way, are what mislead you. Because bad news is always a headline and gradual improvement is not.”
– Bill Gates
September delivered solid gains across global markets, offering a welcome boost to investors. U.S. equity indexes we track all posted positive returns, with the S&P 500 leading the charge. Developed international markets (MSCI EAFE) also advanced, while emerging markets stood out with a robust gain of over 7% for the month. Bond investors benefited from the continued easing interest rate environment, as the Aggregate Bond Index rose more than 1%. Meanwhile, commodities and the U.S. Dollar continued their downward drift, extending recent trends.
All data as of 10/02/2025, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
What a year it’s been for investors—marked by volatility, resilience, and ultimately, reward. The S&P 500 endured a sharp correction of nearly 19% earlier in the year, only to rebound and reach new all-time highs. As crazy as it may sound to some, some analysts are increasing target prices for the S&P 500 to 7000
Despite the persistent concerns of many, ranging from tariff tensions and their potential drag on corporate earnings to softening employment data and consumer sentiment, markets have powered through. Inflation, while not at the 2% level Chairman Powell and the Federal Reserve Board have targeted, has stabilized below 3%. Interest rates have started to move lower. Corporate earnings have largely surprised to the upside. Even geopolitical uncertainty and election-year noise haven’t derailed the upward momentum. In short, 2025 has proven that disciplined investors who stayed the course were rewarded, while headlines often served more as distractions than indicators of long-term value.
This month we will be taking a look at what we think could happen in the fourth quarter before finishing up with some thoughts on the longer term.
Chart #1: www.stockcharts.com Data 10/02/2023 – 09/30/2025 as of 10/02/2025. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week
Looking Ahead to Q4
As we enter the final quarter of 2025, we believe the market is poised to continue its upward trajectory. The S&P 500 has rebounded from its earlier correction and now sits at all-time highs, buoyed by a combination of monetary easing, corporate earnings upgrades, and investor momentum.
Lower interest rates are playing a pivotal role. The Federal Reserve cut rates in September and is widely expected to follow with additional cuts later this month, and again at the December meeting.¹ These moves have reduced borrowing costs, supported corporate margins, and made equities more attractive relative to fixed income.
Earnings growth remains a key driver of equity market performance heading into Q4. We believe this resilience is being fueled by two converging forces: sustained AI-driven capital expenditures and a renewed wave of pricing power among consumer-facing brands.
Major tech firms were expected to ramp up AI-related capital spending to from $240 billion in 2024 to over $320 billion in 2025, reinforcing investor confidence in long-term growth despite short-term macro pressures.² Current estimates suggest that major tech firms will spend approximately $490 billion on AI infrastructure and capital goods in 2026, up from $420 billion previously forecast.³ Additionally, Gartner forecasts that global AI spending across all sectors—including infrastructure, software, services, and consumer devices—will exceed $2 trillion in 2026. This broader estimate captures not only hyperscaler investments but also enterprise adoption, AI-enabled smartphones and PCs, and semiconductor development.⁴
Simultaneously, many consumer brands are just beginning to flex their pricing power, reversing the cautious stance they held earlier in the year. With greater clarity on trade policy and inflation trends, companies are now implementing price increases to protect margins—particularly in sectors like retail, food services, and travel—where brand loyalty and demand elasticity offer insulation.
According to the Yale Budget Lab’s June 2025 analysis titled “Short-Run Effects of 2025 Tariffs So Far,” Yale economists estimated that between 61% and 80% of the new 2025 tariffs were passed through to consumer core goods prices in June, with the midpoint around 70%. This aligns with prior studies on tariff pass-through and reflects how companies began shifting more of the cost burden to consumers as trade policy became clearer.⁵
Investor behavior is another key driver. We believe that both individual and institutional investors are likely to chase returns into the end of the year. Analysts at Morningstar note that sentiment has become “one-way,” with many investors doubling down on what’s worked—particularly large-cap U.S. equities.⁶
That said, we remain mindful of potential disruptions. Tariff uncertainty, labor market softness, and geopolitical tensions could introduce volatility. And let us not forget, as we write these words, the Federal Government is currently closed due to a budgetary dispute.
In short, We believe Q4 looks promising—but it’s a time for strategic positioning, not complacency as the stock market is walking a fine line between AI-driven optimism and macroeconomic headwinds.
Beyond the Horizon: A Long-Term Perspective on Equity Markets
Moving beyond the weeds of short-term market movements, history shows that secular bull markets are born from transformational shifts—moments when technology, productivity, and capital investment converge to reshape the economy. The 1982–2000 bull market was fueled by the proliferation of personal computers and the digitization of the workplace. The 2000–2013 period, by contrast, was marked by stagnation and volatility, as markets digested the dot-com bust, the financial crisis, and a slow recovery.
We believe the current bull market, which began in 2013 and accelerated post-pandemic, is driven by a similarly powerful force: artificial intelligence. Just as PCs revolutionized productivity in the 1980s and 1990s, AI is now transforming how businesses operate, how consumers interact, and how entire industries deliver value. From generative AI in marketing and customer service to machine learning in logistics, healthcare, and finance, the ripple effects are only beginning to be felt.
Importantly, we believe this cycle is still in its early innings. As we noted previously, capital expenditures on AI across all sectors is surging—projected to exceed $2 trillion in 2026 – as corporate America is just beginning to integrate these tools into workflows, decision-making, and product development. As adoption deepens and productivity gains materialize, we expect earnings growth to accelerate, margins to expand, and investor confidence to strengthen.
Will there be bumps in the road? Sure. Short-term corrections and policy shifts are inevitable. Secular bull markets don’t rise in straight lines, but they do persist as innovation drives real economic value. In our view, AI is the defining catalyst of this era, and its impact will likely sustain equity market momentum for years to come.
Chart #2: www.stockcharts.com Data 01/01/1990 – 10/02/2025 as of 10/02/2025. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week
Final Thoughts: Staying the Course
2025 has been a year that tested conviction and rewarded discipline. From a near 19% correction to new all-time highs, the equity market reminded investors that resilience—not reaction—is the cornerstone of long-term success. Despite persistent concerns around tariffs, inflation, employment softness, and political gridlock, the market powered forward, fueled by earnings strength, monetary support, and a growing embrace of transformative technologies.
We believe investors are navigating a rare moment in the markets – one where short-term worry and concern coexist with long-term opportunity. Specifically, we believe that AI-driven innovation, pricing power recovery, and strategic capital deployment is providing the foundation for what could be a multi-year bull cycle. Just as the personal computer era reshaped the economy in the 1980s and 1990s, artificial intelligence is now redefining productivity, profitability, and investor behavior.
That said, this is not a time to just set it and forget it. Strategic positioning, thoughtful diversification, and a planning-first mindset remain essential. Markets may walk a fine line between optimism and macroeconomic headwinds, but history favors those who stay invested through the noise and focus on the horizon.
At Magellan Financial, we remain committed to helping our clients navigate this evolving landscape with clarity, confidence, and purpose. Whether you’re building a legacy, growing a business, or planning for the next generation, we believe the opportunities ahead are as promising as they are profound.
Let’s keep moving forward—together.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
Sources:
¹ Fed Cuts Rates and Signals More to Come in 2025 | Morningstar
² Tech megacaps to spend more than $300 billion in 2025 to win in AI |CNBC.com
³ Big Tech’s AI Spending—and Borrowing—Will Be Even Higher Next Year, Says Citi | Investopedia
⁴ Gartner: AI spending >$2 trillion in 2026 driven by hyperscalers data center investments – IEEE ComSoc Technology Blog
⁵ Short-Run Effects of 2025 Tariffs So Far | The Budget Lab at Yale
⁶ Q4 2025 Stock Market Outlook: Where We See Opportunities for Investors | Morningstar
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S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
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MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
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Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
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Robert I. Cahill, Partner Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner Susan.Shupp@wfafinet.com