Q3 Bulls and Bears

A review of Quarter 3, 2025

Published Oct 20th, 2025

Every quarter, our team analyzes a list of qualitative and quantitative factors of the economy, as we assess what part of the cycle, we find ourselves in. This process allows us to adopt longer-term views on the economy and markets, which ultimately inform our portfolio positioning.

Following the end of Q3 2025, there were 37 bullish economic factors and 12 bearish factors, resulting in a 75.5% bullish and 24.5% bearish score. A fully bullish reading would raise concerns about being late in the economic cycle (near point C), while a fully bearish reading could indicate a potential bottom (near point F) and the start of a new expansion. A reading around 75% bullish suggests a healthy level of optimism, suggesting the U.S. economy’s momentum could continue in the near term, though risks of a cooldown remain given the prolonged upward trend.

Based on current data, the economy seems to be skirting the bottom of the cycle. Several models forecast U.S. GDP growth of roughly 2% over the next several years, reflecting expectations of moderate expansion. We believe this slow and steady growth could continue for some time, neither too hot nor too cool. As the rate of growth cools, the Federal Reserve has begun cutting interest rates, which markets are interpreting positively as precautionary measures rather than reactive, emergency cuts. Although early signs of softness are emerging in labor markets, such as the slowing pace of job gains, they have yet to signal a sharp slowdown, and overall, economic indicators continue to support ongoing moderate growth.

We have integrated this longer-term, strategic score into our portfolio construction process. By factoring in these market insights, we believe that our portfolios are strategically aligned to take advantage of the prevailing market sentiment and optimize returns.

Below is a brief overview of some of our leading bull and bear indicators as of quarter end:

Economic Cycle Bulls:

Monetary Policy

The Federal Reserve cut rates for the first time since 2024 during Q3 and signaled the potential for an additional 50 basis points of cuts by year-end. These moves have reinforced expectations for continued easing into Q4, an encouraging development for both the economy and investors.

Capital Markets

Companies have continued to raise capital with relative ease through IPOs and debt issuances, supported by a stable and receptive market backdrop. Lower interest rates should further benefit smaller and mid-sized firms, making access to capital more affordable and supporting business growth.

GDP Growth

Despite concerns earlier this year during the April tariff shock, the U.S. economy has maintained a solid growth trajectory. Second-quarter GDP was revised up to 3.8%, and early estimates for Q3 remain positive, underscoring the economy’s resilience and adaptability.

Income Growth

Household income continues to grow at a steady pace, in many cases outpacing inflation and restoring purchasing power. With consumer spending making up the majority of U.S. GDP, this steady income growth remains a key driver of ongoing economic expansion.

Economic Cycle Bears:

Labor Market Cooling

Throughout Q3, several employment metrics were revised lower, signaling a softening in labor market conditions. Job gains have slowed to below historical averages, suggesting that the once-hot post-pandemic labor market has been gradually cooling to some extent.

Leading Indicators

Leading economic indicators have remained in bearish territory for some time, with most measures pointing toward slower growth or a potential recession. While those outcomes have yet to materialize, the continued weakness in forward-looking data remains a headwind for overall economic conditions.

ISM Manufacturing

The manufacturing sector continues to show persistent weakness despite policy efforts to encourage onshoring. While initiatives from Washington D.C. aim to increase domestic production, the transition to a more robust manufacturing base will likely take years as infrastructure investments progress.

Housing Starts

Housing starts, a traditional gauge of economic health, have been soft in recent months. Elevated construction and borrowing costs, combined with persistent affordability challenges, continue to weigh on new residential development. This slowdown may be a sign of weaker economic momentum in the quarters ahead.

The quarter concluded the quarter with 48 bullish factors and 16 bearish factors, resulting in a 75% bullish and 25% bearish reading. This outcome suggests that near-term market conditions remain broadly supportive of risk-on assets, underpinned by resilient corporate fundamentals and growing expectations for monetary policy easing. Equities maintained a steady upward trend during the third quarter, with major indexes continuing above key moving averages and volatility staying within a healthy range. A wide range of assets participated in the rally, from precious metals to U.S. equities, to developed and emerging international markets, to bonds, all benefiting from stable fundamentals and optimism around rate cuts.
 
Similar to the broader economic cycle, extremely bullish environments can signal overheating and precede a cooldown or reversal, however, we do not view the current 75% bullish reading as excessive. Considering that markets have not experienced a major pullback since April, the fourth quarter does not appear without risks. Disruptions to the projected 50 basis points of additional rate cuts by year-end could act as a headwind if investors perceive the Fed as moving too slowly. As such, we remain cautiously optimistic heading into the coming quarters, acknowledging the market’s underlying strength and solid fundamentals, while remaining mindful of potential risks ahead.

Below are several bull and bear indicators as of quarter end:

Market Cycle Bulls

Monetary Policy

The Federal Reserve cut rates for the first time since 2024 in September and projected an additional 50 basis points of cuts by year-end. These moves reinforced expectations for continued easing into Q4, a major positive for the economy and risk assets in the short term.

Moving Averages

Most major indexes trended well above their short- and intermediate-term moving averages throughout the quarter and closed Q3 in that position. This strength suggests solid technical momentum heading into the fourth quarter.

Market Breadth

Market breadth ended the quarter on a bullish note, with a majority of S&P 500 constituents trading above their 20-day, 50-day, 100-day, and 200-day moving averages. This indicates that the rally has been broadly based rather than concentrated in a handful of large-cap names, a constructive sign for market health in the near term.

Market Cycle Bears

Buying Power

Lowry’s Buying vs. Selling Power Index shows that interest in U.S. equities remains robust, with buying demand meaningfully outweighing selling pressure. This persistent demand continues to act as a tailwind for stock prices.

Bond Bullishness

With the September rate cut and expectations for additional easing by year-end, bonds have performed well and carry strong momentum heading into Q4. However, this renewed interest in fixed income could divert flows away from equities as investors seek attractive returns in other asset classes, posing a potential risk for stocks.

Inflation

Inflation remains elevated, and any upside surprise could weigh on markets. This risk is amplified during recent government shutdowns, when Bureau of Labor Statistics’ inflation data releases may be delayed, increasing the odds of an unexpected inflation shock if readings move higher.

Lumber-to-Gold Ratio

This ratio, which measures investor preference for risk-on (lumber) versus risk-off (gold) assets, continues to signal a tilt toward safety. The current environment is unusual, as gold has rallied alongside equities, an atypical pattern that may point to a level of caution beneath the surface. Overall, this indicator suggests continued upside potential for gold and downside risks for traditional risk assets.

Earnings Yields vs. Bond Yields

Valuation metrics remain a challenge for equities. The S&P 500’s earnings yield has fallen below the 10-year Treasury yield, making bonds relatively more attractive in this measure. This persistent yield gap between the safer 10-year Treasury yield and the equity market yield represents a continued headwind for stock valuations as we head into Q4.

Sound Planning Group, Inc. offers Medicare and insurance products and operates together with SPG Advisors LLC (SPGA), an investment adviser registered with the Securities and Exchange Commission (SEC). Registration with the SEC or any state securities authority does not imply a certain level of skill or training but indicates the firm is subject to regulatory oversight.

Advisory services are offered through SPGA under the brand SPG. This material is for informational and educational purposes only and should not be interpreted as a solicitation or recommendation to engage in any investment strategy. 

None of the content herein is intended to provide specific retirement planning, investment, real estate, insurance, legal, tax, accounting, or financial advice. It is also not intended to replace the guidance of qualified professionals. Investing involves risk, including the possible loss of principal. No investment strategy can guarantee a profit or eliminate the risk of loss.

Past performance does not guarantee future results. Forward-looking statements are not guarantees of future outcomes and are based on assumptions that may not materialize.

Information presented is based on sources believed to be reliable, including the Social Security Administration and various service providers, tools, and other sources. Some of the information changes periodically and may not always reflect the most current updates. While we strive for accuracy, we make no warranty as to the accuracy, completeness, reliability, currency, or error-free nature of the information provided. 

The material does not necessarily reflect the views or official position of SPGA. SPGA assumes no responsibility for any losses arising from reliance on the information presented. Investors should carefully consider their own investment objectives. Consult with a tax specialist for non-financial retirement planning, estate and/or legal professional prior to making any financial decisions for your personal situation.