Finding Predictability in Unpredictable Times
November 2025 - The third quarter of 2025 moved at light speed. The news has been filled with Trump’s efforts to end multiple wars and conflicts, trade negotiations, and tariffs. The gubernatorial elections in Virginia and New Jersey, along with the mayoral race in New York City, stole the headlines for the past few weeks. The FED acted last Wednesday to lower interest rates by .25% after months of speculation of when and how much. The financial markets continued to set all-time highs, and AI remains the major theme for future growth. We have experienced the longest government shutdown in U.S. history, with no end in sight. We are about to witness how President Trump acts on Venezuela and the Mexican cartels. And finally, the political parties are more polarized than ever. I don’t think anyone could have made up a more diverse and unique group of headlines.
The approaching fourth quarter begs for some resolution to our internal political problems and a return to some semblance of predictability and stability. As of now, that may be asking too much. So, for most of us, we wait, hope, and pray that the people who have pledged to represent our interests do it in a responsible and timely manner.
Looking at some of the headline issues a little deeper, the financial markets have continued to grow on the funding of AI and all it hopes to offer. We discussed the progression of AI in our March article, and we are still very early in its development. We are now seeing real progress in the buildout of the data centers. These centers will come online soon. The major emphasis is now on the electrical power they will require to function. New energy sources and technologies are being introduced to meet this need, creating additional opportunities for investment and new jobs. The need for energy to fulfill AI potential is enormous, and without these new technologies, our electricity costs as consumers will increase exponentially.
AI investment accounted for about two-thirds of the S&P’s profit growth in the third quarter and will be essential to achieve the earnings growth in 2026 that many analysts expect. Some analysts suggest that we may be approaching an “AI Bubble” like the “Tech Bubble” of 2000. While there will certainly be normal corrections and market adjustments due to earnings and buildout issues, AI will dominate the need for capital investment and will also dominate the single most expected earnings growth for the next decade. Given that, the AI Bubble scenario may not have a long recovery period, given the amount of money flowing into its fulfillment. So, for now, tech is still dominant.
Nvidia had the blue ribbon for growth in the third quarter as the company crossed the $5T valuation. Much of the company’s growth is dependent on having open markets to sell its chips, which dominate the chip market and are essential for AI development. President Trump has made it clear that the most advanced chips will not be available in China, which rippled the company’s growth projections. The president has since opened the door for Nvidia, but still maintains that the most advanced chips will not be available. As trade talks with China continue, rare-earth metals and chips will remain prominent subjects of the negotiations. This should be very interesting to watch.
With the government shutdown, we have now missed two U.S. jobs reports. But, from other sources, we can conclude that the labor market has tightened, and job opportunities have become tougher to find. Inflation seems to be holding at about 4% as well as unemployment. We should expect to see some shifting in job seekers away from government agencies and jobs with AI vulnerability. As jobs became scarcer by the end of summer, the FED came under increased pressure to reduce rates. This may continue to be a factor in future FED actions. The FED will be influenced by the government shutdown, trade wars, and the slowdown in hiring. In last Wednesday’s FED meeting, Chairman Powell said another rate cut in December “is not a foregone conclusion-far from it.” This is because, despite all the uncertainty and slowdown in hiring, the economy is showing continued momentum and is not at risk yet. He also noted that the central bank will begin to reduce its balance sheet, which is now about $6.6T. This is called “quantitative tightening” and will help with inflation-driven interest rate increases.
As of last night’s election results, two states elected Democratic governors, and NYC elected a new socialist mayor. These changes will play a role in the mid-term elections next year and may impact the control of Congress. The mayoral change in NYC will be a challenging experiment to see if social policies will work. They have not historically been successful, so the country and the media will be anxious to see what happens. Stay tuned for more headlines.
In large part, the end of the third quarter is like the end of the first quarter. We have reasonable financial stability, enormous geopolitical struggles, and uncertainty about how Washington will affect our lives. I made comments in March, I believe are as relevant and meaningful today as then, so I would like to conclude by including them in closing.
“My view for the balance of 2025 into 2026 is hopeful. It is difficult to author this article without being “political” or appearing to be. In my 45 years in this business, I have been fortunate to collaborate with people of diverse genders, races, religions, and political views. But in those 45 years, I have never witnessed such polarization. Polarization is not healthy. It is divisive and leads nowhere. Respecting everyone as an individual of equal value who has a right to their values and opinions is what makes relationships interesting and allows us to learn and even change.
We live in a different world today from Chet Huntley and David Brinkley bringing the daily news in 1956-1970. And from 1962-1981, Walter Cronkite gave us the first opinion of the news with “That’s the way it is.” We live in a flood of information on social media, entertainment media, and news that is mostly commentary, and we must find the truth. I encourage us all to be diligent in accepting information from unaccredited news sources as fact.
I do believe we will avoid a recession from the disruption the Trump administration has brought early in 2025. I do not think we will be at war in 2025. I believe we will have a positive year in the financial markets and make money. I believe that we will have audited financials of government agencies, congressmen, and congresswomen that will be enlightening. I believe the resiliency of our economic system will be tested and survive, even improve. Disruptions to any business, process, or political environment eventually bring about positive changes for stability and improvement.
Disruption is eventually positive, but it is what it is: disruptive to families, careers, and lifestyles. It is hard to say “It will all work out” or “It will be fine” when it is us, a family member, a friend, or our business that is affected. I hope that the disruption and pain being felt by so many will soon end, and that a better, more efficient system will be realized. Without a crystal ball, it is impossible to say when or what will happen. My crystal ball is broken, but I have faith.
Thank you for allowing me to be personal. Most of all, thank you for the trust you place in us. Your trust is truly our most valuable asset. We welcome your questions regarding your investments and encourage you to contact us if a “life event” requires you to reassess your risk tolerance or financial objectives. We look forward to visiting with you.”
Harold Grubbs
Financial Management, Inc.
Financial Management, Inc. is a CEFEX®-certified Registered Investment Advisor
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