Knowables – Key Market Aspects 06.10.2025

In our effort to keep you informed, this memo is a brief synopsis of the current economic landscape, along with several key factors that are shaping our outlook. As customary, we will be following this memo in a few weeks with our “Controllables” memo – how prudent investors may respond to these events.

Potentially Slower Economic Environment

• The recent implementation of tariffs is expected to slow down economic growth. The U.S. GDP growth rate is projected to be 1.8% for 2025, with China at 4.0%, India at 6.2% and the United Kingdom at 1.5%. Indonesia anticipates 4.8%.

• Tariffs increase the cost of imported goods, which can lead to higher prices for consumers and businesses, thereby reducing consumer spending and business investment, slowing economic activity. Despite this, the Consumer Confidence Index rose sharply by 12.3 points to 98.0 in May, which indicates a dramatic reversal from the prior months.

• The U.S. added 139,000 new jobs in May.

Domestic Stock Market Overvaluation

• Valuations are high relative to historical averages, driven by factors such as low interest rates and strong corporate earnings.

  • The current full year, consensus earnings estimate for the S&P 500 is $264, valuing the index at approximately 22.75 times earnings.

• Growing concern among investors about overvaluation could lead to increased stock market volatility.

  • Several foreign markets have much more compelling valuation multiples than domestic stocks. Will address this in greater detail in our next “Controllables” memo.

Increasing U.S. Government Debt Levels and Higher Inflation

• U.S. government debt levels have exploded the past 5 years, but more concerning is the even more dramatic rise of interest payments.

  • In recent years, the Fed increased interest rates to combat inflation.

  • The interest rate increase has resulted in interest payments rising a stunning 221%, since July of 2020. The national debt rose 134% during that same period.

  • Sustained increases in debt levels and interest rates will strain fiscal resources by crowding out spending on essential but not entitled spending, such as defense, infrastructure, and education.

• Fortunately, inflation has been moderating and is currently estimated at 2.1%, which is very close to the Federal Reserve’s 2.0% target.

Considering these factors, it is crucial to remain vigilant and consider strategic adjustments to your investment portfolio. Risk management will be key in navigating these uncertain times. Uncertain times can also create opportunities for investors with foresight, patience and a good strategy.

Please feel free to reach out if you have any questions or need further insights.