October 2025 Economic & Market Update: What We're Watching Heading Into 2026
As we enter the final quarter of 2025, many of the conversations we're having with clients revolve around a familiar set of questions: Is the economy beginning to slow? Will the Federal Reserve continue cutting interest rates? And what should investors be paying attention to as we move into 2026?
At the beginning of the year, we anticipated moderate economic growth and a relatively low probability of recession. While the year certainly delivered its share of headlines, including tariff concerns, shifting economic data, and signs of weakness in parts of the labor market, the economy has remained more resilient than many expected.
In this update, we share our perspective on inflation, interest rates, economic growth, corporate earnings, and the key themes we're monitoring as we look toward the year ahead.
Economic Growth Has Been More Resilient Than Expected
One of the more notable developments throughout 2025 has been the economy's ability to continue growing despite several headwinds.
While growth has remained relatively modest, businesses have generally continued to adapt, consumers have remained active, and corporate earnings have helped support financial markets. In many respects, the economy has behaved much like we've described in previous updates—not racing ahead, but steadily moving forward.
That resilience has been one of the primary reasons markets have continued to perform well despite ongoing uncertainty.
Corporate Earnings Continue to Matter
When discussing markets, it's easy to become distracted by headlines, politics, or short-term volatility.
However, one of the most important drivers of long-term stock market performance remains corporate earnings. Throughout 2025, earnings growth has helped support higher equity prices and contributed to several major indexes reaching new highs.
At the same time, we are beginning to see areas of the market where valuations appear stretched relative to historical norms. That doesn't necessarily mean a major decline is imminent, but it does reinforce the importance of maintaining realistic expectations and remaining prepared for periods of volatility.
Inflation and the Federal Reserve Remain Front and Center
Inflation continues to be one of the most important variables influencing economic policy and market sentiment.
While inflation has moderated compared to the levels experienced in previous years, it remains above the Federal Reserve's long-term target. As a result, policymakers continue to face the challenge of balancing economic growth with price stability.
The Federal Reserve's decisions regarding interest rates will likely remain one of the most closely watched topics heading into 2026. Investors are increasingly focused on how the Fed responds to moderating inflation, labor market trends, and broader economic conditions.
The Labor Market Is Worth Watching
Employment remains one of the most important indicators of economic health. Although unemployment has increased from recent lows, current levels remain below long-term historical averages. However, recent revisions to labor market data suggest that conditions may be softening, which could influence future Federal Reserve decisions. In our view, the labor market is likely to remain one of the key areas investors should monitor as we move into the new year.
Looking Ahead to 2026
As we look forward, our outlook remains relatively consistent with what we've discussed throughout 2025. While risks certainly exist, including inflation pressures, geopolitical developments, tariff-related concerns, and changing labor market conditions, we continue to view the probability of a near-term recession as relatively low.
That doesn't mean the road ahead will be free of volatility. It simply reinforces a lesson we often share with clients: uncertainty is normal, economic cycles are inevitable, and maintaining a long-term perspective remains one of the most valuable disciplines an investor can have.
Watch the video to hear our latest thoughts on inflation, interest rates, economic growth, corporate earnings, Federal Reserve policy, and the factors we believe investors should continue monitoring as we move toward 2026.
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