Rise Advisors Market Update October 2025
Transcript Below
Hi everybody, this is Zach Harrington from Rise Advisors. And on behalf of all of us at Rise Advisors, I want to thank you for taking the time to watch our market update for what is October of 2025. We sit here in the third week of October, today's October 20th, and a lot has remained the same in capital markets and a lot has remained different. And so we wanted to take a chance here at the start of the fourth quarter to talk through a bunch of kind of high level macro things and then dive into equity markets as well as the bond market to finish out 2025.
So looking at the macro, we're going to talk government shutdown, which is something we're getting a lot of questions from clients about. We're going to talk AI infrastructure spend and the impact on GDP that we've seen throughout the first half of 2025. We're going to talk federal reserve rate outlook and where that seems to be headed over the next year or so. Then we'll pan out to equity markets. We'll talk through this industrial revolution that we're continuing to see when it comes to manufacturing build out here in the United States. We're going to look at balance sheet health of the Magnificent seven or the big tech companies here in the United States. On the bond market side, I have three cool charts from Apollo that I think should ease some of the concerns that have reared their ugly head here in October when it comes to just the overall health and some of the things known as bond cockroaches that have been presenting themselves throughout the start of the fourth quarter.
So let's talk government shutdown. I had a meeting with a client on the day the government shut down and the client came in and was very, very nervous and he sat down with Stephanie and he said, it must have been a rough day today with the government shut down. And on that day the market was in the green across the board, bond yields came down and it was a really good day and the market and Steph and I talked to the client, we said, you know, government shutdowns tend to be a mood point for markets. It doesn't really change the themes of what are going on. And that's what's really presented itself here with this one so far, at least three weeks into it. So the chances are by the time this video comes out next week, the government's back open. Things have been resolved. There's either an extension of six weeks of the deficits of the, excuse me, the debt ceiling or you know, things have kind of prolonged into a larger kind of drawdown. We'll see, it really doesn't matter in the grand scheme of things because very little that impacts the big themes driving the market, which is AI infrastructure spend.
Lawmakers continue to battle over these Affordable Care Act tax credits that came into play during the pandemic that have continued and are trying to be shut down part of, as part of the One Big Beautiful Bill Act. And then on top of that, there's other budget related items that need to be reconciled going into 2026. Markets have remained strong generally during government shutdowns. For example, if we go back to the government shutdown during Trump administration 1.0 once the government shutdown ended, the S&P 500 was up 36% in the 12 months to follow. Now do we think the market has another 36% in it? Time will tell. It's not really our job to decide what things are going to do as far as up or down. It's our job to asset allocate appropriately and make sure that you are staying in coordination with your plan and your investments.
So that's our overall message when it comes to the government shutdown in the years to follow, they really have no impact. It just tends to be a lot of noise. The one thing that was a eye-opening, piece of news was a piece that came out in this one was in Fortune that you're looking at on the screen right now. And Harvard economists came out, Jason Furman. And part of this report that he put out noted that the first half of the GDP growth for 2025 looked really incredibly robust. But if you removed any of the spending that was related to AI infrastructure build out. So the spending, the financing, the economic activity tied to the building of these data centers, the US economy only grew at 0.1% during the first half of 2025. So that kind of hits on two themes that we've talked about a lot throughout this year in these videos.
First and foremost is that the driver of the economy and the growth of the economy right now is not the consumer. It's these really large tech companies that are financing and doing industrial build out across the US to help build these AI data centers. And that theme doesn't surprise us, Tech industrials and financials is what dominated the first half of the year. It's what's dominating the second half of the year. And until this theme upends itself, we think equity markets remain really strong, especially here in the United States. But this was a really validating kind of report that said what we've been saying all along, but in a really simple and concise manner. The other third driver at the macro level that's driving markets for the most part is the Federal Reserve and its rate outlook. So since our last video, the Fed had met in September, cut another 25 basis points and by the time this video comes out, they'll likely have met again. And there seems to be this talk between a 25 basis point cut or a 50 basis point cut. There seems to be some dissent in between members of the Fed board around which level it's going to go with, but it does appear likely that there's another rate cut coming here in the very near future. Looking out to what it looks like, the chart you're looking at here is each of the Federal Reserve governors. It's a summary of their dot plots. What that means is basically where the Federal Reserve is charting the expectation when it comes to the fund rate, both throughout 2025, 2026 into 2027. The expectation here is that by early to mid 2027, the Fed would be done with its rate cutting cycle and be at kind of that 3% neutral rate.
Now some will debate if two point a half percent is neutral or 3% is neutral, time will tell. It's all going to depend on the labor market economic activity in a myriad of other factors. But this is just a really good outlook of where things are headed both from a rate standpoint and a rate cut expectation standpoint. I want to focus on the equity markets a little bit because as we noted with the GDP growth for the first half of the year, so much of equity markets are based upon this expectation that this AI industrial revolution is going to continue. This was a unique chart that I saw that I think really illustrates well just how much money is being piled into a lot of these capital expenditure products and industrial manufacturing products. So when you look at the first half of 2025, the announced capital investment in completed advanced manufacturing facilities topped over $30 billion. That's more than the second half, first half of 2024, combined and even more than the back half of 23, first half of 24 and back half of 24 combined.
So the amount of capital investment here in industrial manufacturing in the United States is incredibly robust and there's no signs of that starting to look like it's going to slow down as commitments for the rest of the decade have topped over 600 billion at this point. This to me is one of the most important sections of this video. So just bear with me a little bit here. There's a famous quote in finance that the scariest words or the worst thing you could essentially say is this time is different. And so we've been getting a lot of questions from clients when it comes to tech bubble. Again, a lot of folks have worked through and lived through the tech bubble of the late nineties and this feels reminiscent of that to a lot of people, at least from a behavioral finance standpoint. The only thing that I think is different this time around is specifically when it comes to the Magnificent seven, yes there are plenty of valuations and a lot of froth and animal spirits and private equity markets when it comes to AI and technology, but overall, when you look at the Magnificent seven in those big tech names, I think that these companies are different than what the tech companies of the tech bubble in the late nineties looked like.
These are really incredibly large companies that have really consistent profits, they have really consistent cash flows, and they have incredibly strong balance sheets. What's really important with that, this is just a quick corporate finance lesson, there's a metric known as a quick ratio. And so what a quick ratio is you essentially take the current assets minus inventories and divide that by the current liabilities of the company. And anything around a one is considered to be in good financial health, meaning their current assets could cover their current liabilities in the event that things went south. And when you look at the Magnificent seven as a whole, NVIDIA's quick ratio sits at 3.6, meaning you could take their cash minus inventory and it'd be 3.6 times the amount of debt the company has. If you look at Alphabet, they're sitting at 1.7, you look at meta sitting at 1.9, you look at Microsoft sitting at 1.3, Tesla sitting at 1.3.
The only two companies that seem to be below that kind of 1-to-1 benchmark is Apple and Amazon. But Amazon's not going anywhere. Sure on the day I'm recording this October 20th, Amazon web services was down most of the morning and it made life really hard if you were trying to scroll social media sites or check your fantasy football lineup with CBS sports. But Amazon is such an ingrained part of our life, their cash relative to liabilities, being below one is not a huge concern. It's not going anywhere. Same thing with Apple. Apple has become such an ingrained part of our lives that they can be a little bit more fiscally irresponsible, if you will, when it comes to their balance sheet management. But overall these quick ratios are really strong and these are really competent companies that it just feels different, where if the bubble starts to burst, I'm not necessarily worried about the magnificent seven.
I want to shift to the bond side of things. So as we sit here in October of 2025, there was a lot of news the first couple weeks of October with these bond cockroaches and these specific kind of private credit funds that had exposure to a couple of automotive names, like first brands and a couple of you know, canaries in the coal mines that could potentially lead to some increased default risk when it comes to the bond portion of your portfolio. First and foremost, one of the things I think is super important to see pan out is I think it's really important that the government doesn't interfere with this and lets defaults take place. It's part of capitalism and if we start to see step ins where like with Silicon Valley Bank a couple years back where the government is stepping in and they're bailing out you know, on some sort of scale either depositors or banks themselves, it's just a really tough look for capitalism.
If banks and lenders don't get held accountable for the credit risk they're taking on, then what's the point of all of it? But with that being said, a lot of our clients don't have exposure to these high yield spaces and they don't have much exposure at all to private credit markets. And so we remain boring in vanilla and personally risk averse on the bond side. But there were three charts from Apollo over the weekend that I thought would allow investors who may have exposure to those spaces take a sigh of relief. So first I'm going to look at is high yield defaults and loan defaults. So when you look at this chart, what you'll see is that both loan defaults and high yield bond defaults have turned over and likely peaked loan defaults peaked at close to 8% towards the back part of 2024. And then loan, excuse me, high yield bond defaults really seemed to peak in the first quarter.
As basically money has become more accommodative, and the Fed has cut rates these borrowers are able to refinance a cheaper cost and improve their margins for the time being. But this is a sign that you know, the worst may be over, and we may not be on this kind of massive default risk, when it comes to high yield bonds and loans.
The next is auto loan delinquencies. So auto loan delinquencies, which tend to be a kind of canary in the coal mine when it comes to consumer health have for the most part peaked when you look at it across all age demographics. And as the Fed started cutting interest rates, they really seem to have kind of turned over here in the first half to three quarters of 2025. Another sign that some of the worst of consumer health, at least for now maybe over. Chart looks very similar when it comes to credit card delinquencies. And to clarify on delinquencies, what we're talking about is basically payments beyond 90 days. So whether it's the auto loan delinquencies or it's the credit card delinquencies, the rate of basically consumers going more than 90 days out on missing payments has turned over.
Generally a pretty decent sign that some of the worst of the worst has happened. So when we're sitting here and we're looking at some of the first brands news that has peered it's had or some of the concerns over private credit, it's not really a concern that we feel exists within our client portfolio. So with that being said, sitting here in the third, fourth week of October, by the time this video comes out, we think rate cuts remain consistent. We think the AI spend story continues in equity markets and we expect a kind of resilient finish to the year and start to 2026. With that being said, we do think there's a couple of specific areas that we're going to be keeping an eye on here over the next few months.
First and foremost is your concentration to mortgages. So we're a bit overweight in mortgages that rise and we're comfortable with that. But as rates continue to come down and the potential for a velocity of refinances to hit the mortgage backed security sector, we are, we're going to look to reduce that concentration and get more back towards the benchmark when it comes to those weightings. The other thing we're going to likely keep an eye on is perhaps picking up some active management specifically on the value side of the portfolio.
We have a lot of market beta exposure in our portfolios or exposure to stock market through just kind of broad indices and we will meet as partners and talk through and see if that makes sense. With that being said though, really great 2025 so far even with the tariff scare and as we look here in the fourth quarter, it looks like that party's going to continue on.
So as always, as we get into the back portion of the year here, as you're meeting with, whether it's Mark or Chuck or Angelica or myself, if you have any questions or would like to talk through this more specifically when it comes to your portfolio, don't hesitate to reach out and let me know. And on behalf of all of us here at Rise Advisors, we hope you have a great rest of your year. We'll see you in November and have a great rest of your day. Thank you.
Sources:
1.https://www.cnbc.com/2025/10/07/government-shutdowns-stock-market-performance.html
2.https://fortune.com/2025/10/07/data-centers-gdp-growth-zero-first-half-2025-jason-furman-harvard-economist/
3.https://www.kitces.com/wp-content/uploads/2025/10/Kitces-Top-10-Themes-for-Client-Conversations-Q4-2025-2.pdf
4.https://www.apolloacademy.com/the-global-industrial-renaissance-continues/?utm_medium=email&utm_source=pardot&utm_id=91babd2434a2e51459b911fb0f5fc842&utm_campaign=EXT_Daily+Spark
5.https://www.google.com/search?q=quick+ratio+of+mag7&rlz=1C5CHFA_enUS887US887&oq=quick+ratio+of+mag7&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIJCAEQIRgKGKABMgkIAhAhGAoYoAEyCQgDECEYChigATIJCAQQIRgKGKABMgcIBRAhGKsCMgcIBhAhGI8CMgcIBxAhGI8CMgcICBAhGI8C0gEINzUxMmowajSoAgCwAgA&sourceid=chrome&ie=UTF-8
6.https://www.apolloacademy.com/wp-content/uploads/2025/10/101925-Charts.pdf?utm_medium=email&utm_source=pardot&utm_id=91babd2434a2e51459b911fb0f5fc842&utm_campaign=EXT_Daily+Spark
This presentation is for Informational purposes only.
All investment strategies including rebalancing and diversified asset allocation have risk. Past performance of our investment approach, component holdings and methods does not guarantee future results. Advisory services offered through Rise Advisors, LLC ("Rise") Registered Investment Advisor. While all data is believed to be from reliable sources, accuracy and completeness are not guaranteed.