Newsletter

Economy, Stocks and Bonds

October 2025

 

We are beginning the 4th quarter with many unknowns and substantial risks.
Nevertheless, as they say, “the market climbs a wall of worry.” The S&P 500 is trading at all-time highs, the price of oil is relatively low despite substantial conflict in the Middle East, and the Russia-Ukraine war is raging on; arguably beginning to show signs of broadening to directly involve NATO. The Federal Reserve began cutting interest rates at last month’s meeting, which we consider to be a mistake. Subsequent information suggests that inflation remains uncomfortably high. Making matters cloudier, the latest GDP report was a revision up to 3.8% from 3.3% as given in the prior report. This is a clear indication that the economy is stronger than thought, and in fact, far stronger than the 2% GDP growth that economists hold to be the sustainable long-term growth rate for a developed nation’s economy. While the Fed has cited the labor market as a key concern, we have not seen conclusive evidence that the labor market is in trouble. 

Unemployment remains under the 5% level that traditional economists define as “full employment.”
While the recent Nonfarm Payrolls reports have come down dramatically, they do not signal a contracting labor market, merely a decelerating one. Even if the report turns negative the next time we get it, there is a long way between the current 4.17% unemployment rate and the 5% that signifies “full employment.” To clarify, cutting rates in this environment is quite likely to cause inflation to reaccelerate, possibly beyond levels we have experienced in recent years. Should this happen, we may experience increased volatility in markets.

While markets have taken all the above in stride and continued to advance,
we do see higher-than- comfortable potential for volatility in the short term. In the event that this occurs, we advise remaining calm and not changing long-term plans based on short-term market events. The S&P 500 is trading at 6700 as of this writing and the VIX volatility index is 16.7. This indicates relatively placid expectations among market participants for now, but VIX has a habit of spiking aggressively when investors become concerned.

Rates have moved since the Fed’s last action, but something interesting has happened.
On Treasuries dated 1 year out and further, the yield is actually at least a few basis points, if not 10, higher than it was on September 17th when the Fed lowered rates by 25 basis points. This suggests that inflationary concerns are present among bond investors. It will be interesting to see what happens, but we are expecting higher inflation and higher volatility going into the end of the year.

The "Dirty Dozen" for 2025

Each year the IRS identifies the top dozen tax scams for taxpayers to watch out for. The “dirty dozen” campaign began in 2002 and has evolved over time. Increasingly, the internet has become the vector for bad actors and bad tax information. The list:

  • Email phishing scams, also including “smishing,” which is phishing via texts on a smartphone.

  • Bad social media advice, including specifically on TikTok.

  • IRS Individual Online Account help from scammers—third parties are not needed to establish an Individual Online Account.

  • Fake charities.

  • False Fuel Tax Credit Claims, which is only allowed for of-highway business and farming uses.

  • Credits for Sick Leave and Family Leave, which were only allowed in 2020 and 2021 during the pandemic.

  • Bogus self-employment tax credit.

  • Improper household employment taxes.

  • The overstated withholding scam.

  • Misleading offers in compromise.

  • Ghost tax return preparers, which includes any tax preparer unwilling to sign the return or include the IRS Preparer Tax Identification Number.

  • The new client scam. This one is aimed at tax professionals, rather than at the general public. The scammer pretends to be a potential new client via email and will include a malicious attachment to the email which can compromise the tax professional’s computer systems. The scammer may then access client information to be used for fraudulent refund claims and the like.

For more information on these and other scams related to taxes,
visit the IRS website. 


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