The Cornerstone Investment Commentary: 3rd Quarter 2025

Global financial markets, particularly in the U.S., knew what they wanted this summer: confirmation
that future interest rates would be lower sooner than later and clarity about future U.S. tariffs. When
they (mostly) got both, stocks and bonds responded with strong gains.

Overall for the third quarter, equities gained over 7.5%, with U.S. stocks up over 8% and foreign stocks
up over 7%. For all of 2025, U.S. and foreign equities have increased about 15% and 25%, respectively.
The bond market was also positive, with a 1.5% gain to push year-to-date returns above 5%. Your
portfolio profited from these results, especially since its equity allocation remains tilted toward U.S.
stocks in general and growth stocks in particular, where some of the quarter’s highest returns
occurred. Your fixed income emphasis on intermediate-term bonds (rather than short-term) also
proved beneficial.

Economically, we are in an uneasy ‘Goldilocks’ moment, where nothing seems either ‘too hot’ or ‘too
cold’. A cooling labor market gave the Federal Reserve reason to lower rates last month; however, job
growth that slows too much eventually hinders overall economic growth. In addition, inflation has
been subdued enough for the Fed to pivot from this as its chief concern; however, inflation also
remains above its 2% target and has risen at a 3.2% annualized rate since May. Finally, with consumer
spending still strong even as consumer confidence falls, the outlook for corporate profits – the stock
market’s key long-term driver – is hazy amid evidence that businesses are increasingly passing along
tariff costs via inflationary price increases.

Against this backdrop, we continue to manage your portfolio knowing that any of these key factors
could tip toward either ‘too hot’ or ‘too cold’ at any time. We are mindful of balancing the
opportunity/risk continuum and recently took advantage of the summer market rally to re-balance your
portfolio. Specifically under such conditions, this means positioning the asset classes in both your
equity and fixed income holdings to be ready for a variety of ways in which the coming economic winds
may blow. We believe this is the prudent path forward for the coming quarter when over-confidence
about what will or will not happen could lead to costly mistakes.

As always, we welcome your comments and questions and thank you for the continuing opportunity to
work with you. Finally, we send our warmest wishes to you and those you love for good moments and
celebrations in the holiday season.