Our Thoughts on THIRD Quarter 2025

Matt Johnson, CFA® - Andy Nugent, CFA®

Market Recap, Portfolio Analysis, and Review

During the third quarter of 2025, the U.S. economy and stock market balanced between lingering inflation concerns and optimism over potential central bank easing. The S&P 500 continued to climb, though gains were concentrated in a handful of large technology and communication companies.

According to Goldman Sachs, analysts may still be underestimating corporate earnings strength this quarter, suggesting the potential for positive surprises. Reuters data shows projected year-over-year earnings growth for S&P 500 companies around 8.8%, with revenue growth near 5.7%.

The Federal Reserve reduced interest rates by 25 basis points in September. While many expect additional cuts later in the year to counter a possible labor market slowdown, others caution that inflation pressures—partly driven by tariffs—remain elevated. The Fed’s next moves will depend on incoming data.

A recent Minneapolis Fed study found that the effects of tariffs are still unfolding. Import prices for tariff-affected goods are about 5% higher, but many retailers continue to absorb those costs rather than pass them on to consumers.

Inflation

The latest Consumer Price Index (CPI) shows headline inflation rising to 2.9% over the past 12 months, up slightly from 2.7% in July. Core inflation held steady at 3.1%. These readings suggest inflation has stabilized near long-term averages.

While inflation remains above the Fed’s 2% target, it has not accelerated despite higher tariffs. This could leave room for additional rate cuts if economic growth slows later this year.

The US Dollar

Information provided by FactSet

The U.S. Dollar Index (DXY) has fallen roughly 10% year-to-date, though it appears to have found a short-term floor.

A weaker dollar has mixed implications for the economy. It can benefit U.S. exporters and multinational companies by making their goods and overseas earnings more valuable in dollar terms. However, it also raises the cost of imported goods and materials, which may pressure profit margins and modestly add to inflation. For consumers, a weaker dollar slightly reduces purchasing power for imported goods and travel abroad.

Sector Analysis

Market performance in the third quarter continued to be uneven. Gains remain concentrated in technology, communications, and mega-cap growth stocks, while energy, healthcare, and other cyclical or trade-sensitive sectors have lagged.

Technology and communication services have benefited from ongoing investment in artificial intelligence, digital platforms, and scalable business models. Meanwhile, sectors facing regulatory risk, pricing pressure, or higher input costs have struggled to keep pace.

Market breadth remains narrow, with the so-called “Magnificent 7” continuing to drive most of the index’s returns. A broadening of leadership—where more sectors and companies participate in market gains—would signal a healthier, more sustainable rally.

Portfolio Activity & Rationale

Our third-quarter portfolio adjustments focused on realizing profits, managing risk, and reallocating capital toward more stable income opportunities.

• Added to Verizon: We increased our position in Verizon, attracted by its nearly 7% dividend yield, modest valuation, and steady earnings growth. We see potential for meaningful upside from current levels.

• Sold Novo Nordisk: We exited Novo Nordisk due to growing competition in the weight-loss drug market. With new compounds being developed by competitors, we felt it prudent to reallocate funds to other opportunities.

• Trimmed NVIDIA, Oracle, Palantir, and Costco: After strong price appreciation, we reduced our exposure to lock in gains while maintaining meaningful positions for continued participation.

Summary

Markets continued higher through the third quarter, driven largely by technology and AI-related companies. We believe that as the economic cycle matures, lagging sectors such as healthcare and consumer staples could regain strength and help broaden market leadership.

If the Federal Reserve continues to lower rates later this year and into 2026, it will likely support further economic expansion. Corporate earnings have remained resilient, providing a solid base for future growth.

While we expect periodic volatility, our focus remains unchanged: to pursue strong long-term returns while managing risk prudently. Market fluctuations are a natural part of investing, and disciplined portfolio management remains the key to success over time.

We appreciate the trust you place in us and look forward to continuing to help you reach your financial goals.

Matt Johnson, CFA® Andy Nugent, CFA®

Sage Capital Advisors, LLC is a Securities and Exchange Registered Investment Advisor. Sage Capital Advisors is headquartered in Sioux Falls, South Dakota. Advisory services are only offered to clients or prospective clients where representatives of Sage Capital Advisors are properly licensed or exempt from licensure. This market commentary is solely for informational purposes and should not be construed as investment advice, it is only intended to provide education about the financial industry. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of investment management fees, or the impact of taxes, all of which would have the effect of decreasing historical performance results. Indices are unmanaged and cannot be invested in directly. It should not be assumed that your account holdings correspond directly to any comparative indices. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered unless a client service agreement is in place.