Portfolio Manager Commentary

October 1, 2025

Economic Outlook

The U.S. Leading Economic Index declined by 0.5% in August to 98.4. The ISM Manufacturing PMI registered 49.1 in September, the strongest reading since February. Industrial Production was 0.9% higher than a year earlier in August. The University of Michigan Consumer Sentiment Index posted a final reading of 55.1 in September, the second consecutive monthly decline. The 5-Year Breakeven Inflation Rate stood at 2.42% as of September 30, pointing to stable medium-term inflation expectations. Capacity Utilization held at 77.4% in August, in line with expectations. Average hourly earnings rose 0.3% and 3.7% year over year. The NAHB Housing Market Index was 32 in September, underscoring persistent weakness in the housing market. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.46% as of September 26.

Fixed Income

The Federal Reserve reduced the federal funds target range by 25 bps to 4.00%-4.25% at its September 17 meeting and noted its balance sheet runoff will continue. This reduction to the target range follows six consecutive meetings with no changes. With nearly a full month before the next FOMC meeting, futures markets now assign a high probability of another 25 bps cut on October 29. Treasury yields along the short and intermediate end of the curve continue to shift lower. The 2-year Treasury yield is currently 3.56% and the 10-year is 4.13%, leaving the curve modestly positive. Credit spreads remain very tight. The spread between the ICE BofA US High-Yield Index Effective Yield relative to 10-year Treasury yields continues to narrow to lowest levels on record.

Yield Curve

Current Generic Bond Yields

Equities

U.S. Equity markets extended gains in September, with the S&P 500 index approaching 6,700 to end the month. The S&P 500 posted its fifth straight monthly gain. Breadth remains supportive, as roughly 64% of constituents continue to trade above their 200-day moving average. On a total return basis, the market-cap weighted S&P 500 has advanced 14.57% year to date, outpacing the equal-weighted index’s 9.98% gain, reflecting continued leadership from large-cap growth. In the short run, seasonality appears to be favorable, as Q4 has historically been the strongest quarter of the year for the stock market going back to the S&P's inception in 1928.

In 2025, the best performing U.S. sectors have been Communication Services (+24.51%), Information Technology (+22.31%), and Industrials (+18.38%). The worst performing sectors have been Health Care (+2.61%), Consumer Staples (+3.89%), and Consumer Discretionary (+5.30%). On a total return basis, the Russell 1000 Growth Index has returned 17.24% year to date, while the Russell 1000 Value Index has increased 11.65% over the same period.