'Tis The Season!
The Markets
Uncertainty abounds.
Investors were skittish last week. Share prices jolted higher and lower amid concerns about artificial intelligence (AI) data center spending, upcoming Federal Reserve rate decisions, and the strength of consumer spending, reported Phil Serafino and Natalia Kniazhevich of Bloomberg. These issues will affect the future performance of companies, and investors are trying to anticipate what may be ahead.
In the third quarter, companies were profitable and sales were strong
Overall, U.S. companies performed well in the third quarter of 2025. So far, 95 percent of companies in the Standard & Poor’s (S&P) 500 Index have reported on performance over the period. Almost three-fourths performed better than analysts expected. Overall, company profits were up 13.4 percent for the quarter, reported John Butters of FactSet.
Sales (a.k.a. revenue) have been strong, as well. In the third quarter, S&P 500 companies had the highest combined sales growth in three years (+8.4 percent). “Three sectors are reporting (or have reported) double-digit revenue growth for the quarter: Information Technology, Health Care, and Communication Services,” reported Butters.
Share prices reflect recent performance and investors’ expectations
While strong company performance is reassuring, some analysts and asset managers believe stock prices, overall, are too high. For instance, Bank of America’s November survey of global money managers found that most respondents thought stocks were overvalued, reported Brett Arends of MarketWatch via Morningstar.
Not everyone agrees. Last week, Dan Kemp of Morningstar reported, “Strong revenue growth and unusually high profit margins…alongside the US stock market’s growing concentration in companies benefiting from the rapid growth in AI have led Morningstar’s analysts to increase their estimates of the market’s fair value. As a result, the average US company under Morningstar’s coverage now appears undervalued...”
Expect volatility to continue
While Morningstar analysts think valuations are attractive, they expect markets to remain volatile. The U.S. stock market’s “concentration in tech stocks – companies dependent on long term future growth – brings with it increased risk of lurching price movements driven by short-term changes in investor sentiment.”
There were a lot of ups and downs last week. Major U.S. stock indices ended the week lower. In contrast, U.S. Treasuries rallied, with yields on most maturities falling.
'Tis The Season!
The holiday shopping season gets underway this week, and expectations are high. The National Retail Federation (NRF) looks at a bunch of economic factors – consumer spending, disposable personal income, employment, wages, inflation, and monthly retail sales – to estimate how much people will spend over the winter holidays. This year, the forecast suggests sales will top $1 trillion.
“American consumers may be cautious in sentiment yet remain fundamentally strong and continue to drive U.S. economic activity…We remain bullish about the holiday shopping season and expect that consumers will continue to seek savings in nonessential categories to be able to spend on gifts for loved ones,” explained NRF President and CEO Matthew Shay.
The gift shift
The Currency reported on a recent survey, called the Going Rate, that explored how Americans think about gift giving and spending. When responses were tallied, it found that:
86 percent Believe gifts can be meaningful without being expensive.
75 percent Expect gifts will be more expensive this year because of tariffs and inflation.
60 percent Think gift culture has gotten “out of hand”.
58 percent Have a gift budget.
56 percent Buy gifts throughout the year to spread out the cost.
48 percent Experience gift fatigue.
33 percent Are adopting no-gift policies.
Fifty-five percent of millennials, 50 percent of Gen Z, and 28 percent of baby boomers would rather give the gift of time and shared experience. They believe their presence is the real gift. Respondents who plan to give gifts expect to spend about $64 per person, on average.
Weekly Inspiration
“Honey, do you honestly think I would check thousands of tiny little lights if I wasn’t sure the extension cord was plugged in?”
– Clark Griswold, National Lampoon's Christmas Vacation
Best Regards,
California Retirement Advisors