By Andrew Comstock, CFA®
It was another rewarding quarter for investors. The S&P 500 notched 23 new all-time highs, while small caps, international equities, and even gold reached record levels. Since the April lows, stocks have staged an impressive rally, with large caps up 35% and small caps gaining 39%. Bonds also posted gains, supported by falling interest rates and tighter credit spreads.
The rally was driven by several key factors: solid earnings growth, accelerating investment in artificial intelligence (AI) infrastructure, and relief that tariffs have not yet significantly weighed on the economy. In September, the Federal Reserve (Fed) cut interest rates for the first time in nine months in an effort to support a softening job market. In July, the passage of new tax legislation removed a lingering source of uncertainty, giving both businesses and households a greater sense of stability in an otherwise noisy environment.
Investment Strategy
Your portfolio remains fully invested in line with its long-term strategy. We continue to hold a well-diversified mix of stocks across different geographies, sectors, and styles. While your portfolio is benefiting from the growth tied to artificial intelligence, it is not overly dependent on this one theme.
Earlier this year, we added a low-volatility fund as a hedge to the tariff uncertainty to your large-cap stock holdings. Given how markets have evolved, we are reviewing whether this position remains the best fit going forward.
We continue to see value in bonds. Even though yields are lower than they were at the start of the year, they remain attractive by historical standards and provide both return potential and stability. In fact, the level of yield at the time you invest has historically been one of the strongest indicators of future bond performance.
Outlook
We are positive in our outlook, but approach it with prudence, recognizing how much markets have already gained in recent years. To start, we’ll look at the economic backdrop. The job market is showing signs of deterioration, with slowing job creation and a rise in jobless claims. While consumer spending has remained resilient, this strength is becoming increasingly concentrated. Over 50% of U.S. consumer spending is now being carried by households earning $275,000 or more annually. This reflects both the robustness of high-income consumers and the fragility beneath the surface.
There is a clear connection between job security and spending behavior. When households feel confident in their employment prospects, they are more likely to make discretionary purchases such as travel, cars, and home improvements. When that confidence weakens, spending is often scaled back quickly, which can ripple through the broader economy.
Inflation continues to run above the Fed’s 2% target, hovering between 2.5% and 3%. Tariffs are beginning to show up in the cost of imported goods. On average, goods imported to date have carried tariffs of roughly 6%, but more recent shipments are now facing an average tariff of closer to 19%. This suggests that the inflationary impact of trade policy is still in its early stages.
The Fed is expected to cut interest rates two more times this year. These cuts are designed to provide support for a softening labor market and help prevent an economic slowdown. At the same time, policymakers remain cautious about easing too aggressively, since they do not want to reignite inflationary pressures. We are watching these developments carefully, and if the Fed’s actions or economic data shift our outlook, we are prepared to adjust our strategy accordingly.
Turning our attention to U.S. large cap stocks, valuations look rich by historical standards. The premium investors are paying today reflects optimism about future earnings, as markets generally look six to twelve months ahead. Current forecasts call for earnings growth of 10% in 2025 and 13% in 2026. While these expectations support today’s pricing, they also leave very little room for disappointment. If earnings growth slows or falls short, a market pullback is likely.
One of the most significant drivers of earnings optimism is the extraordinary investment in artificial intelligence. Over the past three years, AI-related infrastructure spending, including data centers, semiconductors, and energy supply upgrades, has already surpassed the inflation-adjusted cost of constructing the entire U.S. interstate highway system. Looking ahead, the four major “hyperscalers” (Alphabet, Microsoft, Amazon, and Meta) are expected to spend more than $400 billion on AI buildout in 2026 alone. This capital is fueling demand across industries like semiconductors, utilities, real estate, and industrials, while also driving early productivity gains in areas such as software development and healthcare.
The long-term potential of AI is enormous, but history shows that cycles of this scale — whether railroads, electrification, or fiber optics — take years to play out, and often produce only a few lasting winners. The remarkable stock market gains tied to AI should be viewed with both optimism and caution.
It is also important to remember that the stock market is not the economy. While the two are linked, they are not perfectly correlated. Market prices can move higher even when economic data softens. In fact, the recent momentum in stocks serves as a reminder that all-time highs often lead to further highs. For now, AI spending is pushing the market forward, but this will not last forever. Now is not the time to get greedy, but rather to stay diversified and invested toward your long-term goals.
Give us a call (913) 871-7980 or email andrew@beyond-wealth.com to schedule an introductory meeting and start this year on a better financial path toward your own vision.
About Andrew
Andrew Comstock, CFA®, is Principal & Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm in Overland Park, Kansas, dedicated to empowering clients to make impactful financial decisions. Serving the Kansas City metro area, Beyond Wealth specializes in helping wealth-building professionals and business owners navigate life transitions. With a mission to provide comprehensive wealth management services, Andrew’s proficiency lies in leveraging his background in institutional investment management to create tailored investment strategies. He provides research-driven portfolio management, focusing on helping clients build wealth for key milestones, whether it’s buying their forever home, purchasing a business, or funding their children’s education. Alongside Brandy, Andrew combines comprehensive planning with a long-term investment approach, helping clients grow their wealth while enjoying life.
Andrew began his career in institutional investment management, managing portfolios for insurance companies, pension funds, and mutual funds. Inspired by a desire to make a more personal impact, he transitioned to advising individuals directly, bringing his passion for financial empowerment to Beyond Wealth. Known for his commitment to high standards and always seeking to grow and discover, Andrew is dedicated to delivering thoughtful, tailored strategies for his clients’ unique financial needs.
Andrew graduated from the University of Tulsa with a BSBA in Finance and obtained the Chartered Financial Analyst® designation. Active within his professional community, he’s a member of the CFA Institute, Kansas City CFA Society, and the Overland Park Rotary Club. Andrew is a past president of his Rotary club, served on the University of Tulsa’s Board of Trustees, and was the National Board President of the Alumni Association at TU. He is the Investment Chair for the Catholic Foundation of Northeast Kansas. Outside of work, Andrew is a devoted Chiefs, Royals, Sporting KC, and Everton fan who loves exploring KC’s vibrant restaurant scene, especially the BBQ hotspots. With dual citizenship in the U.S. and Ireland and experience living in Switzerland, he’s an avid traveler who’s visited 37 countries and counting. Andrew is also a proud cancer survivor, a perspective that reinforces his commitment to helping families feel confident about their financial futures while embracing the present. To learn more about Andrew, connect with him on LinkedIn.
