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Fall 2025 Market Commentary
Regardless of geopolitical upheavals, tariff and commerce uncertainties, international fairness markets had a really robust third quarter. The US economic system and market have been boosted by a pause in punitive tariffs and a strong capital funding growth in Synthetic Intelligence (AI). By some measure as much as half of the three.8% acquire in GDP was attributable to tech capital spending. A surge in international protection outlays have helped increase the aerospace and protection business. The weakest greenback since 1973 has aided export heavy US multinationals and our overseas shares. Low cost gasoline helps shoppers with the bottom worth on the pump in 5 years nearing $3 a gallon. International direct investing into the US is now the best since 2022. All the most important indexes ended the quarter increased with the tech-focused Nasdaq Composite up 11.24%, the S&P 500 gaining 8.12% and the Dow up 5.67%. The equal weight S&P was up 4.84% and the Russell 1000 Worth up 5.33%. The passage of favorable tax laws in July and an rate of interest lower in September offered additional assist for equities, particularly smaller shares. FactSet estimates that S&P 500 corporations will report third-quarter earnings development of greater than 10% year-over-year, down from 12.7% within the second quarter. The S&P 500 has a trailing P/E of 30.73 and a ahead P/E of 23.38. The dividend yield is 1.15%.
Dangers
Rising sovereign debt ranges along with unregulated borrowing within the “shadow banking” area are price monitoring. Non- deposit monetary establishments (NDFIs) now account for 50% of all monetary companies, and 33% of economic and industrial loans. These loans are flippantly regulated and opaque in nature. The latest bankruptcies of NDFIs First Manufacturers and Tricolor led to losses that shocked the lending banks. One other signal of rising extra in lending is the latest $55 billion Digital Arts (EA) leveraged buyout at 27 occasions working money circulate. That is the biggest leveraged buyout since Texas Utilities in 2007. That buyout was priced at $45 billion and a price-to-operating money circulate of 8.5 occasions. It in the end went bankrupt. As well as, there was a proliferation of levered exchange-traded funds (ETFs) with the most recent being 5x levered. These merchandise can add to volatility, particularly on the draw back. One other signal of hypothesis is the zero-revenue story inventory like nuclear energy startup Oklo (OKLO) which hit a $20 billion valuation with no gross sales or earnings projected till no less than 2027. We noticed this happen in 2021 when electrical truck maker Nikola (NKLA) got here public at $15 billion with no gross sales or earnings. It failed. Rivian (RIVN), one other extremely touted EV maker, got here public at $100 billion solely to in the end plunge 90%. Over 400 Chinese language EV corporations failed between 2018 and 2024. In a latest October report Morningstar discovered that unprofitable shares within the Russell 2000 have been up 55% year- to-date in contrast with 8% for these with income. Margin debt as a proportion of US GDP has surpassed the highs of the Dotcom and 2008 monetary crises and is close to all-time highs. As of September, margin debt is up 38.5% year-over-year to $1.13 trillion.
International central banks have additionally been slicing charges with Financial institution of America reporting a complete of 312 cuts to this point this yr, the second-most within the final 25 years. This along with a weak greenback has boosted overseas equities that are outperforming the US for the primary time in a number of years. Whereas central banks have been decreasing charges they’ve additionally been aggressively shopping for gold, contributing to large beneficial properties within the valuable steel. In 2022, 2023 and 2024 banks purchased simply over 1000 tons every year. The earlier 10-year common was 400-500 tons. Supply: World Gold Council.
International Tensions Enhance Aerospace and Protection Business
Tensions from long-running conflicts world wide have been a boon for aerospace and protection corporations on account of an increase in army spending partially pushed by President Trump. The United Nations reported that $2.7 trillion was spent on militaries in 2024 they usually challenge that this might develop to $6.6 trillion yearly by 2035. All 15 of the world’s largest army spenders elevated their price range final yr. Aerospace and protection corporations are included within the industrials sector of the S&P 500 which has been the third greatest performing sector year-to-date within the index behind solely the communications and know-how sectors. The S&P Aerospace & Protection Choose Business Index outperformed all the most important inventory market benchmarks throughout the third quarter, up 11.92%. Within the US corporations like RTX (RTX), Boeing (BA), Parker Hannifin (PH) and Lockheed Martin (LMT) have benefited from this elevated international spend and have just lately raised their monetary steerage for 2025. The US is at present proposing a document price range of $1.01 trillion for 2026.
Third Quarter 2025 Efficiency Replace
Auxier Focus Fund’s (AUXFX) Investor Class gained 5.35% within the third quarter of 2025. For a similar interval the S&P 500 cap-weighted index and the equal weight returned 8.12% and 4.84% respectively. The Russell 1000 Worth was up 5.33%. Yr-to-date equities within the Fund gained 14.31%, whereas the Fund returned 12.96%, vs 14.83% for the S&P 500. For the quarter, mounted revenue investments as measured by the S&P US Combination Bond Index returned 2.00% and the longer-dated ICE US Treasury 20+ Yr Index declined 2.47%. Shares within the Fund comprised 95.10% of the portfolio. The breakdown was 86.10% home and 9.0% overseas, with 4.9% in money and short-term debt devices. A hypothetical $10,000 funding within the Fund since inception on July 9, 1999 to September 30, 2025 is now price $74,286 vs $77,247 for the S&P 500 and $61,839 for the Russell 1000 Worth Index. For a similar interval, equities within the Fund (whole portfolio, not share class particular) have had a gross cumulative return of 1,161.49%. The Fund had a mean publicity to the market of 83% over your entire interval. Our outcomes are unleveraged.
Auxier Focus Fund – Investor Class Common Annual Whole Returns (09/30/2025)
Contributors
The mix of strong capital spending on Synthetic Intelligence, incentives for rebuilding the US industrial base, reshoring and elevated protection outlays boosted the efficiency of commercial shares. Aerospace and protection corporations like RTX and Basic Dynamics (GD) benefited. Corning (GLW) CEO Wendell Weeks has generated terrific returns over the previous decade since we purchased the inventory. The corporate is having fun with robust demand for his or her optical communication merchandise which are being utilized in fiber optic cables and AI knowledge middle connectivity. The large infrastructure buildout that’s going down to broaden knowledge middle capability has boosted demand for Caterpillar’s (CAT) conventional equipment in addition to their energy options merchandise like mills. Large financial institution shares like Citigroup (C) and Financial institution of New York (BK) mix strong execution with low valuations versus the business.
The data know-how sector additionally continues to carry out nicely. Firms like Alphabet (GOOGL), Microsoft (MSFT) and Meta Platforms (META) are placing up distinctive development within the areas of cloud computing, AI and digital promoting. Alphabet’s Google Search grew 14.5%. YouTube is dominating the media panorama with advert income up 15%. Google reported 34% development in its cloud unit whereas Microsoft’s Azure income noticed a outstanding 40% improve since a yr in the past. Elsewhere, increased margins on account of favorable oil costs are boosting refinery shares. Decrease enter costs have allowed corporations like Valero Power (VLO) and Phillips 66 (PSX) to broaden money flows as they profit not directly from AI infrastructure buildouts that require vital utilization of heavy equipment.
Detractors
Shopper-facing companies have suffered from tariffs and a persistently excessive inflation charge, up 3% in September–the best since January. Eating places and the Meals and Beverage business as a complete have struggled. Alcohol consumption is the bottom in 90 years, impacting Diageo (DEO) and Molson Coors (TAP). Wineries and different farms are getting hit exhausting. The 20-35 age group is saddled with resumed pupil mortgage funds, excessive housing prices and the dearth of jobs for latest school graduates. Mockingly, these companies are usually among the most enduring franchises with excessive returns on fairness, nominal obligatory capital spending and enticing dividend and free money circulate yields. For that purpose, in addition to the enticing valuations, we anticipate extra mergers and acquisitions in your entire staples area.
In Closing
Whereas the most important capital funding cycle in AI appears to be dominating the market, it’s not the primary time now we have seen this. We are able to bear in mind prior booms just like the surge of private pc IPOs in 1983 or the tech-telecom-media binge in 1999; these led to a concentrated shopping for frenzy adopted in the end by a provide glut and everlasting capital loss for buyers. Our focus is on compounding returns and information. We’re aggressively learning the disruptive affect of AI on companies and industries as we search double-play funding alternatives.
We recognize your belief.
Jeff Auxier
Authentic Put up
Editor’s Be aware: The abstract bullets for this text have been chosen by In search of Alpha editors.