Market Conditions (October 2025)

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Over the past 30 years, the purchasing power of the US Consumer Dollar has halved due to inflation. At the same time, the S&P 500 has risen 888% (8% per year) AFTER adjusting for inflation. Why you need to invest, in one chart…

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This is a special edition of the Week in Charts where I break down the state of the market. Here’s a quick look at what’s happening across the major asset classes and the economy…

📊 1) Shares

In one of the most remarkable comebacks in history, the S&P 500 has now rallied 40% from its April lows, reaching 33 all-time highs this year.

Corporate earnings continue to rise, with S&P 500 earnings projected to hit a new high in the third quarter, up 10% year-over-year (TTM).

But with the share price up 17% in the last year, we are once again seeing a lot of expansion. The peak price-to-earnings ratio for the S&P 500 has risen to 27.9, more than 60% above the historical median and at its highest level since 2000.

The S&P 500 is now trading at more than 3.3x sales, its highest price-to-sales ratio in history.

Entering this year, US stocks had outperformed International stocks for more than 16 years, by far the longest outperformance in history.

But so far this year, we are seeing a reversal, with international stocks up 28% vs. the S&P 500’s 14% gain.

Internationally, Europe has been the standout performer with the Eurozone ETF ($EZU) up more than 35%.

In US equity markets, we see a number of extremes:

• The ratio of Growth stocks to Value stocks is at a new all-time high, surpassing the peak of the dot-com bubble in March 2000.

• The technology sector’s outperformance is also at a new record high, above last year’s and March 2000 peaks.

• The ratio of US Large Caps to US Small Caps reached its highest level since April 1999 at the start of this year. But over the past few months, we have seen a reversal in this ratio and Small Caps hit their first all-time high since 2021.

• Nvidia now controls more than 8% of the S&P 500, which is the largest share ever of any name in the index. Nvidia, Microsoft and Apple now control more than 21% of the S&P 500, the highest weighting ever recorded for any three stocks in the index. The 39% combined weight of the 10 largest US stocks in the S&P 500 is also a record high.

💵 2) Bonds & The Fed

The US bond market is still experiencing its longest drawdown in 62 months and counting.

But after a 6% gain so far this year, it is now just 3% away from reaching a new all-time high…

All major bond categories are now in positive territory for the year, with Emerging Markets leading the way.

The interest rate cut has helped increase bond yields, with investors betting on a continuation of the Fed’s easing cycle starting in September 2024. The market currently expects (>99% probability) that the Fed will cut interest rates again this month with a 25 bps drop to 3.75-4.00%. After that, 4 more cuts are expected and the Fed Interest Rate is expected to fall below 3% by the end of 2026.

What could thwart those expectations? The increase in the Fed’s preferred inflation measure (core PCE) of 2.9% is still far above the Fed’s target of 2%.

What could accelerate the decline in interest rates?

Deteriorating economic conditions, especially the weak labor market. Although the Unemployment Rate remains low at 4.3%, job growth is slowing (<1% YoY) and in the last 4 months less than 100 thousand jobs were created. Private payroll (ADP) also decreased for 2 consecutive months for the first time since the 2020 recession.

🏠 3) Real Estate & Housing

Even though the S&P 500 has hit 90 all-time highs since early 2024, US Real Estate stocks ($IYR ETF) remain 10% below their peak in early 2022.

This is partly due to the decline in US commercial real estate prices which are still down 18% from their peak level in 2022.

Due to continued underperformance, the ratio of US Real Estate stocks to the S&P 500 is now at its lowest level since 2000.

Turning to the housing market, affordability – or affordability – continues to be the biggest issue.

The median household income needed to purchase a median-priced home for sale in the US ($124k) is now 57% higher than the current median household income ($79k). This is the most unaffordable housing market in history.

How did we get here? Home prices have increased at more than double the rate of wages over the past decade and mortgage rates have more than doubled over the past few years.

However, signs of change are starting to appear with active listings up 7% year-on-year.

And home sellers are now estimated to outnumber buyers by more than 500,000, the largest gap ever recorded based on 2013 data.

If this gap continues, price appreciation will continue to slow. At that time, U.S. home prices rose less than 2% over the past year, the slowest growth rate in two years.

And seven large cities experienced a negative YoY trend, and this number is expected to increase in the coming months.

Meanwhile, the rental market in the US continues to become more affordable, as a high vacancy rate (7.1%) has kept a lid on prices. Rental prices have now declined year-over-year for 28 consecutive months with median rental prices still below peak 2022 levels. Renting a home is cheaper than paying a mortgage in the 50 largest US metro cities.

🛢️💱 ₿ 4) Commodities, Currency and Crypto

Gold has been the biggest news in Commodity markets this year, with a gain of more than 65%. This was his best year since 1979.

In relation to inflation, Gold has never been higher than it is today, at 13x compared to 9x at its peak in 1980.

Silver is also at a record high, leading all commodities in the past year with a gain of more than 70%.

Bitcoin surpassed $126,000 earlier this month for the first time, its 18th dollar milestone this year.

Supporting the narrative behind Bitcoin and Gold:

• Decline in the US Dollar Index, which experienced its worst record in the first half of this year.

• The Federal government’s inability to regulate spending, with the budget deficit still approaching $2 trillion and the National Debt rapidly approaching $38 trillion.

• Resumption of Money Printing with M2 again hitting record highs, growing at the fastest rate in 3 years.

📉 5) Economy

After falling 0.6% in Q1, real GDP bounced back in Q2, rising by 3.8%. This was driven by a reversal in the net export category which was a major drag in Q1 and made a major contribution in Q2.

The US economy has now experienced expansion for more than 5 years.

And expansion is expected to continue through at least the next quarter, with Q3 GDP at +3.9% according to the latest estimates from the Atlanta Fed.

Strong consumer spending continues to drive economic growth, and the most important graph for the real economy is moving in the right direction. Wages have now outpaced reported inflation on a YoY basis for 28 consecutive months, a good trend for American workers that is expected to continue.

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