In this latest installment of our newsletter, we share our observations of the markets and the economy in 2025.  Click here to go to the full January 2026 report on our website.  Following are the highlights:

• In 2025, U.S. markets experienced significant volatility at the start of the year but ended it with most major stock indices near record highs.

• There was a sharp selloff in April 2025 following the announcement of new tariffs on nearly all U.S. trading partners, which sent the S&P 500 Index down nearly 20%, briefly approaching bear market territory. However, U.S. equities staged a remarkably quick recovery when many of the tariffs were paused just a week later.  By late June, the S&P 500 was once again reaching record highs, as trade conditions stabilized, corporate earnings remained strong, and AI-related investments continued at a rapid pace.

• For the year, the S&P 500 Index delivered a total return of 17.9%, representing the third consecutive year of double-digit returns for equity investor.  The cumulative return for the S&P 500 over the last three years topped 78%, in quite a remarkable multi-year performance.

• Bond investors also saw positive returns in 2025, with the Bloomberg Aggregate Bond Index returning a strong 7.3% for the year.

• Although still dominated by U.S. mega-cap technology stocks, the equity rally did broaden as the year progressed, with all 11 sectors of the S&P 500 ending the year in positive territory.  Strong performers outside of the tech sector included industrials, financials, and utilities.  Lagging sectors, though still positive, were consumer, energy, and real estate.

• International stocks also outperformed the S&P 500, with the MSCI All Country World Index returning over 30% in 2025.
• Artificial Intelligence (AI) was the dominant theme of the year, as this transformative technology was a key driver of global economic growth and market returns. The AI Revolution has already proved transformative in a myriad of ways, from workflow efficiencies to productivity gains and medical breakthroughs.  But the future pace of progress and user adoption remains uncertain, and therefore the returns on the massive investments being made by big tech companies may vary widely. 

• Overall, the U.S. economy continued to show remarkable resilience in 2025.  U.S. GDP grew at a better-than-expected annual rate of 4.3% in the third quarter of 2025, the fastest pace in two years and significantly higher than the 3.3% rate that economists expected.  The growth was driven by robust consumer spending, rebounding exports, slowing imports, and increased government spending (prior to the shutdown).

• Another bright spot in the economy has been corporate earnings, which continued to grow at an impressive clip in 2025.  Year-over-year earnings of the S&P 500 index grew by a better-than-expected 14% in Q3, marking the fourth consecutive quarter of double-digit growth for earnings.  For the fourth quarter, earnings are expected to grow by a solid 8.3%, and for the full year 2025, the figure is projected to be 10.8% higher than 2024 earnings.

• Despite the overall positive state of the U.S. economy, headwinds remain.  The U.S. labor market took the spotlight from inflation in 2025, as it lost much of the positive momentum it displayed in 2024. Over the course of the year, new job growth declined steadily, hiring slowed significantly, and wage growth was flat.  The U.S. unemployment rate climbed steadily over the course of 2025, starting the year at a 4.0% rate and ending the year at a 4.4% rate in December.

• Inflation also remained above the Fed’s target rate of 2.0% all year.  The Consumer Price Index (CPI), the broadest measure of inflation, increased by 2.7% year-over-year in December.  Elevated costs for food, shelter, and medical services continued to drive inflation.  The expectation for 2026 is an annual inflation rate stuck between 2.4% and 2.7%, according to economists.    

• After three consecutive years of double-digit gains in the market, we are somewhat cautious on equities in the near-term.  But our long-term view of the U.S. market remains bullish.

• We continue to emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We believe in the importance of staying invested, even during market downturns.   And, we believe our patient, disciplined approach to individual security selection offers our clients strong, long-term return potential in a transparent, cost effective, and tax efficient manner.

• We appreciate your confidence in our time-tested investment philosophy, and we remain steadfast in our commitment to helping our clients and their families reach their long-term financial goals.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the third quarter of 2025.  Click here to go to the full report on our website.  Following are the highlights:

• Stocks registered another record quarter during the three months ended September 30^th, posting their strongest third quarter performance since 2020. The S&P 500 Index hit 23 record highs during the period, among the most ever in a single quarter.
• The S&P 500 Index posted a total return of 8.1% and the Nasdaq returned 11.2% in the third quarter, which came on the heels of double digit returns in the second quarter for both indices.  Year-to-date through September 30th, the S&P 500 has delivered a total return of 14.8% and the Nasdaq has returned 17.3%.
• Bonds also posted gains, with the Bloomberg Barclays Aggregate Bond Index returning 2.0% in the third quarter and 6.1% year-to-date
• Momentum built throughout the quarter as market volatility remained unusually low. Investor sentiment was lifted by resilient corporate earnings, continued optimism around artificial intelligence (AI), and expectations for a new cycle of monetary easing. All of these positives played out despite ongoing concerns about tariff and trade policies, slowing labor conditions, and geopolitical crises around the world. 
• Technology and communication stocks once again drove the rally, however a strong showing by industrial, financial, and materials stocks fueled a more broad-based market rally in Q3 than has been seen for quite some time. For the first nine months of 2025, all eleven sectors of the S&P 500 Index have generated positive returns.
• The Federal Reserve announced its first interest rate cut of the year at its September 17th meeting, cutting its benchmark short-term rate by one-quarter of 1% (or 25 basis points) to a target range of 4.0% – 4.25%.  This marked the first rate cut since December 2024 and was largely prompted by a softer-than-expected August jobs report.  The move was seen as a measured step to support economic growth, by balancing concerns about inflation with the need to support the labor market.
• The U.S. economy has been sending somewhat mixed messages, with strong GDP growth counter-balanced by a slowing labor market.  U.S GDP grew at a better-than-expected annual rate of 3.8% in the second quarter of 2025, according to the final estimate of the U.S. Bureau of Economic Analysis.  For the third quarter ended September 30th, the forecasts for GDP growth range from 3.9% (the Fed’s GDPNow model) to 2.5% (the New York Fed’s projection). 
• Another bright spot in the economy has been corporate earnings, which have continued to grow at a solid clip so far this year. Year-over-year earnings of the S&P 500 Index grew by 11% in Q2 and are expected to grow by nearly 8% in Q3, which would be the ninth consecutive quarter of earnings growth for the index.
• But not all the economic news is this optimistic, with the U.S. labor market starting to show some cracks.  The August unemployment rate rose to 4.3%, up from 4.2% in July, as a modest 22,000 jobs were added during the month.  The unemployment rate has shown a steady uptick since June, when the rate stood at 4.1%.  Persistently weak hiring since the spring has contributed to the uptick, but the lack of mass firings has also kept a lid on unemployment.
• Consumer confidence also fell in September due to growing worries about the labor market.  And fears about inflation re-igniting continued to play out in August.  The Consumer Price Index (CPI), the broadest measure of inflation, increased by 2.9% year-over-year in August 2025, up from 2.7% in July.  Elevated costs for food, shelter and services contributed to the increase.
• Adding to the uncertainties, Congress failed to pass a continuing resolution to fund the government beyond midnight on September 30th, causing the government to shut down.  Prolonged shutdowns can impair economic activity and reduce government revenues and spending.  However, financial markets have historically treated shutdowns as a short-term disruption, triggering a typical “risk-off” reaction.  That means that volatility can rise, the dollar may fall, and stock markets can sell-off.  But the depth of a sell-off tends to mirror the length of the shutdown, with markets bouncing back quickly once government operations are restored. 
• Looking forward, we are somewhat cautious on equities in the near term given the economic, fiscal, and geo-political uncertainties.  We also consider the broad market to be fairly valued, based on the S&P 500’s current forward price-to-earnings ratio of approximately 22.5 times, just above its 5-year average of 20 times.
• However, we believe that many parts of the market warrant valuations higher than historical averages based on factors like technological progress, productivity advances, and asset-light business models that have produced consistently higher profit margins and free cash flow for a large number of companies in the S&P 500 Index.
• In addition, not all segments of the market carry lofty valuations.  For example, many healthcare, energy, and financial stocks are trading substantially below the market’s average P/E multiple, and we continue to look for opportunities in these and other undervalued sectors.
• Overall, we continue to favor more value-oriented, dividend-paying stocks that have strong cash flow characteristics, leading market share, a wide economic moat, and solid growth prospects.
• While we still own 6-12 month Treasury bills with annualized yields just below 4% for excess cash, we are on the lookout for additional income securities as those Treasury yields decline.
• We continue to emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We believe our patient, disciplined approach to individual security selection offers our clients strong, long-term return potential in a transparent, cost effective, and tax efficient manner.
• We appreciate your confidence in our time-tested investment philosophy, and we remain steadfast in our commitment to helping our clients and their families reach their long-term financial goals.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the second quarter of 2025.  Click here to go to the full report on our website.  Following are the highlights:

• A tumultuous second quarter ended on June 30^th with stock market indices reaching record highs, despite ongoing concerns about tariff and trade policies, slowing economic growth, and geo-political crises around the world. 
• The S&P 500 index surged 10.9% in the second quarter and the Nasdaq returned 17.8% for the three months from April to June.  These marked strong rebounds from the negative 3% and negative 8% returned by each index, respectively, in the first quarter of 2025.  For the first six months of the year, the S&P 500 delivered a positive total return of 6.2% and the Nasdaq returned 5.5%.
• The strong turnaround in stocks in the latter part of Q2 was led in large part by technology shares, which had previously been hit hard by China’s DeepSeek AI scare as well as by tariff concerns.  But these concerns proved to be short-lived, as investors applauded strong first quarter earnings reports, ample capital expenditure plans by AI hyper-scalers, and an overall belief that the AI growth story remains intact.
• The sharp sell-off in April and subsequent snap-back to all-time highs by June provided evidence of the efficacy of our long-term investment philosophy.
• The U.S. economy is once again showing, we believe, that it’s the strongest, most resilient, and adaptable economy in the world. Despite all the economic uncertainties around tariffs, inflation, interest rates, and budget deficits, investors continue to find more reasons to be optimistic.  Strong corporate earnings, solid GDP growth, and a remarkably resilient job market suggest that the U.S. economy remains on solid footing.
• Despite the positive economic signs, a number of significant headwinds remain.  Fears about inflation re-igniting from prolonged tariff disputes with key trading partners such as Canada, China, Japan, and the EU are top of mind for investors and policymakers, alike. 
• The Fed recently increased its inflation forecast for full year 2025 to 3.0% from 2.8%, reflecting this uncertainty.  Higher inflation also risks slowing GDP growth, with the Fed reducing its GDP forecast for 2025 to 1.4% from 1.7% at the beginning of the year.
• Finally, concerns about the U.S. debt and deficits have grown with the passage of latest government tax and spending bill, which is projected to add to the deficit over time.  In addition, Moody’s downgraded the U.S. credit rating in May, joining other major agencies in stripping the U.S. of its once-coveted AAA rating. 
• Amid all this uncertainty, the one thing that hasn’t changed is the Federal Reserve’s policy stance on interest rates, which has held steady since December. 
• We remain cautious on equities in the near term given the economic, fiscal, and geo-political uncertainties.  We also consider the broad market to be fairly valued, based on the current forward price-to-earnings ratio of the S&P 500 of approximately 22 times, just ahead of its 5-year average of 20 times.
• Still, not all segments of the market carry such high valuations.  For example, healthcare, energy, and financial stocks are substantially below the market’s average multiple, and we continue to look for opportunities in undervalued sectors.
• Overall, we continue to favor value-oriented, dividend-paying stocks that have strong cash flow characteristics, leading market share, a wide economic moat, and solid growth prospects. We also still like short-term Treasury bills with annualized yields of 4.2%+ for excess cash.
• Our outlook for the markets is guardedly optimistic, as we believe volatility may continue until there is more clarity on tariffs and their longer-term impact on the economy.  But we continue to emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives. 
• We appreciate your confidence in our time-tested investment philosophy, and we remain steadfast in our belief that the U.S. is still the best economy to invest in over the long-term. 

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the first quarter of 2025.  Click here to go to the full report on our website.  Following are the highlights:

• Uncertainties about economic policies around trade and tariffs sent markets reeling in the first quarter of 2025, resulting in declines in both the S&P 500 and Nasdaq Composite indices.  It also reversed a string of five consecutive quarters of gains and two consecutive years of 25%+ returns for the broad stock market.
• During the first quarter, the S&P 500 Index posted a negative total return of 4.3% while the Nasdaq fell 10.5%, putting the latter in correction territory. 
• The bond market provided some relief to investors, as the Bloomberg Barclays Aggregate Bond Index returned a positive 2.8% for the quarter, as investors flocked to the safe haven of bonds, pushing up prices and tamping down yields. 
• The sharp selloff in equities continued in the early trading days of April, roiling investors further and sending most major indices into or near bear market territory (defined as a fall of 20% or more from a recent high), before recovering somewhat in mid-April. 
• Investors also rotated out of growth-oriented, technology stocks in the first quarter, favoring instead more defensive, dividend-paying stalwarts like utilities and consumer staples.  It was the worst quarterly performance for tech stocks since 2020.
• The sectors that had been left behind in the tech runup of 2023-2024, such as energy, healthcare, consumer staples, and utilities, were the top performers in Q1 of 2025. 
• One key take-away from this year’s market so far is that diversification works.   Well-diversified portfolios, like the ones we construct for our Edgemoor clients – with exposure spread across industry sectors, market capitalizations, geographies, and asset classes – provide important ballast and protection for long-term investors.
• The U.S. economy is still showing resilience, though cracks are emerging. On the positive side, corporate earnings are still growing, consumer spending is still positive, and unemployment remains historically low.  Household balance sheets are healthy, and consumer debt remains under control, for now.
• However, a sustained trade war could lead to higher prices and lower economic growth and is already causing some businesses and consumers to pull back on spending and investing.  Growth forecasts for 2025 have been revised downward and are predicting a considerable slowdown from 2024.
• The slowdown of the U.S. economy is raising fears of an economic recession or potentially stagflation, which is the combination of stagnant growth and higher inflation. Since the tariff announcement on April 2nd, many Wall Street strategists have increased the probability of the United States entering a recession this year. However, the current tariff situation is fluid, and recessions are impossible to predict with any certainty. Ultimately, it will be the breadth, depth, and length of the tariffs that will determine the long-term impact on the U.S. economy.
• Our Outlook:  In the near term, we expect elevated volatility in global stock markets to continue given ongoing uncertainties. However, we also remain committed to our strategy of constructing long-term, broadly diversified portfolios of stocks and income securities we consider high-quality and that can weather periods of market volatility and continue to grow their revenues, earnings, and dividend payouts. We stand firm in our belief that good investments should not be sold at depressed prices.
• Looking forward, we anticipate new opportunities will emerge in certain securities as they become more reasonably valued.  We have already been favoring dividend-paying securities, international stocks, and short-term Treasury bills yielding 4%+.
• Even though markets can be volatile quarter-to-quarter and year-to-year, we emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We believe our patient, disciplined approach to individual security selection offers our clients strong long-term return potential in a cost effective and tax efficient manner.  We appreciate your confidence in our time-tested investment philosophy.

In this latest installment of our newsletter, we share our observations of the markets and the economy in the fourth quarter and for the full year of 2024.  Click here to go to the full report on our website.  Following are the highlights:

• 2024 proved to be another strong year for equity investors.  The S&P 500 Index, the broadest measure of the U.S. stock market, delivered its second consecutive year of 25%-plus returns, the first time since 1997-1998 that the index notched back-to-back 20%-plus gains.
• The positive momentum in equity markets was propelled by a combination of strong GDP growth, cooling inflation, solid corporate earnings, and falling interest rates. 
• For the year, the S&P 500 had a total return of 25.0%, on top of the 26.3% gain generated in 2023.  The Communications Services and Information Technology sectors once again drove the gains, with Financials and Utilities not far behind.  Volatility returned late in the fourth quarter, as equities declined 2.4% in December.
• The bond market also experienced some weakness at year-end. The 10-year Treasury yield, a key barometer of the bond market, jumped from 3.6% in September to 4.6% in December, sending bond prices down. (Bond prices move in the opposite direction of interest rates or yields).  As a result, the Bloomberg Barclays Aggregate Bond Index returned just 1.3% for the year, driven down by a 3.1% loss in the fourth quarter.
• The Federal Reserve capped off this year’s rate-easing cycle that began in September with a modest 25 basis point (one-quarter of 1%) cut to its benchmark Federal Funds rate in December 2024.  This brought the total rate cuts in 2024 to 100 basis points, or a full 1%, to a final range of 4.25% – 4.5%. 
• Chairman Jerome Powell also signaled in his remarks a cautious stance for 2025, indicating the likelihood for just two additional rate cuts this year, down from four cuts expected earlier in the fall.  The caution stemmed from a number of factors, including still-high inflation forecasts coupled with strong growth and employment expectations. 
• The U.S. equity markets reacted negatively to the Fed forecast, with the S&P dropping nearly 3.0% and the Nasdaq sinking 3.6% on the day of the announcement. 
• Inflation remains sticky. While inflation has come down significantly since its peak in June 2022, the absolute level of prices in the U.S. still remains high, especially in areas such as food, housing, and services (think insurance premiums).  Housing comprises roughly 35% to 40% of the CPI index and is proving to be the biggest and most difficult obstacle to the Fed reaching its 2% inflation target. 
• The U.S. economy has achieved a favorable combination of strong GDP growth, low unemployment, and cooling inflation due in part to surges in both productivity and available labor.  Between 2022 and 2024, productivity increased by 4% cumulatively, nearly double the average annual rate for the prior ten years.
• These labor advances resulted from a confluence of factors, including a surge in new business formations, technological advances like AI that boosted worker efficiencies, and expansionary U.S. fiscal policies that targeted major domestic initiatives like semiconductor production.    
• The fundamentals of the U.S. economy – GDP growth, unemployment, corporate earnings, and consumer spending – also all remain on solid footing. Third quarter GDP growth was a strong 3.1%, following 3% growth in the second quarter.  For the full year 2024, GDP growth is expected to be 2.7% followed by 2% growth in 2025.
• With the November Presidential election now behind us, investors are waiting to see what economic policies will actually get implemented by the new administration.  Most are expecting an easing of regulations, a tightening of immigration policies, the extension of tax cuts for both consumers and corporations, and the imposition of tariffs on a wide array of goods and services.
• So, who might be the winners and losers from such policies?  No one really knows at this point, but the potential beneficiaries could be banks and other financial institutions, domestic manufacturers, and energy companies, while retail, construction, and agricultural businesses could see a decline in labor supply, depending on the extent of new immigration policies. 
• We remain cautiously optimistic about U.S. stocks, despite lofty current valuations. The forward price-to-earnings ratio for the S&P 500 is currently 21.7 times, higher than the five-year average of 19 times.  But not all sectors or companies carry such high valuations, and we have been able to find pockets of opportunity in areas like energy, healthcare, and financials at substantially lower valuations.
• Looking ahead, the risk-return trade-off of bonds has become more attractive.  Higher starting yields and lower future rates should combine for attractive long-term returns and a valuable ballast to equity exposure in balanced portfolios.
• Overall, we maintain a positive long-term outlook for the U.S. economy and markets.  But it remains to be seen whether momentum or valuation will dictate investment returns in 2025.
• We believe our patient, disciplined approach to individual security selection offers our clients strong long-term return potential in a cost effective and tax efficient manner.  Even though markets can be volatile quarter-to-quarter and year-to-year, we emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We appreciate your confidence in our investment philosophy.

The Edgemoor Team