What We're Watching in October

As we move into the final quarter of 2025, the market dynamics remain ripe for analysis filled with both contradiction and opportunity. With recent data revisions, interest rate forecasts, and inflation drivers offering important signals, not just about the economy, but about how to read the headlines. At Carnegie Investment Counsel, we believe staying grounded in facts and context is the key to staying ahead. 

Behind the Numbers: Understanding the Big Job Revisions 

The U.S. labor market data recently made headlines for all the wrong reasons, mainly due to large-scale revisions to previously reported job numbers. With nearly a million jobs removed retroactively, some skeptics have suggested manipulation or political motives. But the reality is far more technical in nature. 

Revisions are driven by differences between two data sources: the Current Employment Statistics (CES), which is a survey, and the Quarterly Census of Employment and Wages (QCEW), which is based on hard payroll data. Survey participation has been declining, and delayed responses have skewed monthly data that only gets fully reconciled months later. The headlines may sound dramatic, but the mechanics are well-documented and explainable. 

We think it’s important to clear up the misinterpretation. This is a data-collection issue, not a conspiracy. The Fed is responding accordingly, not overreacting, by adjusting to new realities as the numbers settle. 

 The Fed’s Forecast: Fewer Cuts, Sooner 

The Federal Reserve’s latest guidance signals a shift from three rate cuts next year to the market now expecting up to three this year with little follow-through in 2026. One notable dissent came from newly confirmed Governor Stephen Miran, who favored a more aggressive 50-basis-point cut, but this view remains an outlier. More hawkish members, like Michelle Bowman and Christopher Waller, did not follow suit. 

Overall, the Fed’s outlook hasn’t changed much. Unemployment is still projected to end the year around 4.5%, and inflation remains on a modest path. The headline here isn’t about panic, it’s about prudence. 

The Market’s Mindset: A Wealth Effect in Action 

Despite lingering concerns about valuations, the market continues to climb. In our chart of the month, we would like to illustrate that consumer spending remains strong, particularly among the top 10% of earners, who now account for nearly half of all spending in the U.S. That level of concentration raises sustainability questions, but in the short term, it’s reinforcing economic optimism.

Chart of The Month

Consumers in the top 10% of the income distribution accounted for 49.2% of total spending in the second quarter, up from 48.5% in the first quarter, reaching the highest level in data going back to 1989, according to an analysis by Mark Zandi, chief economist for Moody's Analytics. 

With 401(k)s performing well and the S&P 500 near record highs, we’re seeing the psychological boost of the “wealth effect” in real time. When investors feel wealthier, they tend to spend more confidently and that’s showing up in both retail sales and sentiment indicators. 

Inflation: It’s the Tariffs, Not the Services 

Inflation has ticked higher recently, moving from 2.3% to 2.8%. But the primary driver isn’t housing or services, it is goods inflation, much of it stemming from tariffs. These cost increases hit importers first, showing up on balance sheets before they trickle into broader inflation metrics like Personal Consumption Expenditure (PCE). The second half of the year may reveal more of this impact as inventories turn into actual sales. 

The key takeaway is inflation isn’t surging across the board. Rather, it’s concentrated in one area, and we expect some of that pressure to fade over time. 

Quarterly Earnings: More Information Beats Less 

A discussion that’s resurfaced in financial media is whether public companies should report earnings less frequently, say, twice a year instead of quarterly. While some argue this would reduce pressure on management, we believe quarterly reporting strikes the right balance. 

In a world where markets move faster than ever and some exchanges are pushing for 24-hour trading, less disclosure doesn’t help investors make better decisions. Quarterly earnings may be time-consuming and stressful for management, but they also deliver vital transparency. For long-term investors, more clarity is always better. 

Markets Defy Seasonality—Again 

September is often a challenging month for equities, but not this year. In fact, a stronger-than-usual September has some strategists forecasting continued strength through year-end. Historically, when markets defy seasonal norms in Q3, they tend to carry momentum into Q4. 

However, we remain cautious. While the market has climbed, it hasn’t been across the board. Breadth remains narrow, with sectors like real estate, healthcare, and telecom still lagging. That suggests there’s still room for rotation and opportunity. 

Final Thoughts 

From data revisions to Fed policy, from tariffs to transparency, the theme this month is clarity: digging deeper to understand what’s really driving market moves. At Carnegie, we are here to provide that perspective by cutting through the noise, focusing on fundamentals, and helping you stay aligned with your long-term goals.  

Stay tuned for more as we close out the year with a watchful eye and a steady hand. 

This commentary is for informational and educational purposes only. Opinions are subject to change. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. The information has been obtained from sources we believe to be reliable, but Carnegie has not independently verified the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. 

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