Quarterly Update – October 2025

Market Update

After a volatile second quarter, the third quarter proved much more enjoyable for investors as the US stock market chugged higher. It’s often said that markets “climb a wall of worry” and 2025 has certainly embodied this old adage. Despite a number of uncertainties lingering like 1) the U.S. Government shutdown 2) continued tariff related risks 3) stocks trading at all-time highs with valuations at the highend of historical ranges, markets are on track for a third straight year of double-digit returns. The S&P 500 Index enjoyed an 8.1% return in Q3 and through September 30th the index is up 14.8% for the year. In fact, AI enthusiasm helped propel U.S. equities to set all-time highs 1 out of every 3 days last quarter. International stocks continue to outperform their US peers this year and are up 25.7% (MSCI EAFE Index).

Fixed income (Bloomberg U.S. Aggregate Index) has returned 6.1% through the end of the third quarter. After a nine-month pause, the Federal Reserve resumed its easing cycle by cutting interest rates 25 basis points (0.25%) at its September meeting. Upside risks still remain to inflation but the Fed seems to have turned its eye toward the labor market and the unemployment rate ticking up. To avoid further weakness in the labor markets (and political tension) the odds are the Fed will cut rates at least once more in 2025.

The last five years, though marked by plenty of headwinds, have generally yielded impressive investment gains. However, these gains have been uneven, and investors without a disciplined rebalancing strategy have likely seen their portfolios grow riskier. With the outlook still uncertain, we’ve been rebalancing client portfolios back to their target allocations to help ensure that they are properly diversified to weather any storms that may arise.

Navigating AI-Driven Markets

The enthusiasm surrounding artificial intelligence (AI) has driven U.S. stock markets to record highs in 2025, particularly boosting mega-cap technology companies. However, these firms’ stock prices have surged faster than their earnings, resulting in valuations that are notably higher than the broader market. With a narrow margin for error, this raises concerns about possible volatility if challenges emerge, potentially turning the AI boom into a bust for unprepared investors.

Mark Casey, portfolio manager at Capital Group, notes, “AI systems have made incredible strides, but we’re still in the early stages of their adoption over the next decade.” He foresees AI driving productivity and innovation across industries, from manufacturing and agriculture here in Indiana to global healthcare. Yet, the benefits will vary - some companies will thrive, while others may struggle with disruption. Most analysts expect the AI sector to experience cycles of excitement and periodic setbacks when expectations outpace reality.

AI isn’t just driving the stock market higher, it’s also propelling the economy. Sparked by innovations like ChatGPT, AI businesses have become a key driver of U.S. economic growth. As of June 30, 2025, technology spending - encompassing research, development, and data centers - accounted for approximately 7.5% of U.S. GDP, surpassing the dot-com peak, according to Capital Group. Major players like Microsoft, Amazon, Alphabet (Google), Oracle and Meta are projected to invest over $390 billion in 2025 on AI infrastructure, such as data centers and advanced chips, up from $250 billion in 2024. This spending reflects the growing demand for AI tools and cloud services but also carries risks if short-term returns don’t match these hefty investments. For returns to outpace the cost equity, either valuations must stretch further, AI development must surpass already loft expectations, or productivity gains must drive earnings growth beyond base-case forecasts.

This underscores the importance of staying grounded. Our approach remains focused on your long-term financial security. As Warren Buffett, the Oracle of Omaha, wisely said, “Don’t invest in tips or fads. Invest in businesses you understand, with strong fundamentals, at a reasonable price.” We prioritize companies with solid foundations, blending growth opportunities with disciplined risk management to weather market cycles.

Firm News

• Congratulations to Luke who recently was elected to the Ronald McDonald House of Northeast IN Board of Directors! In support of the local Ronald McDonal house, Arena Wealth Management sponsored a team at their annual “Clays Classic” event. It was a great fall day at the St. Joe Conservation Club and the event raised over $125k for their organization.

• Our firm’s website was recently updated! We redesigned all aspects of the website with you, our clients, in mind. From handy links to access your account, to new blogs, we hope you give it a look and let us know what you think.

By focusing on what we can control: your goals, our costs, diversification and discipline - we are here to assist you as we navigate market volatility that will inevitably arise. We hope you finish the year strong and as always, we thank you for the trust and confidence you place in us. We feel fortunate to serve each of you.

In the Arena,

Ryan Kay, CFP®, AIF®

President

Email: ryan@arena-wealth.com 

Luke Friskney

Associate Advisor

Email: luke@arena-wealth.com

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.” -Theodore Roosevelt’s “Man in the Arena”