Quarterly Newsletter - Q4 2025

Market Performance

US equities rallied in Q3 with the S&P 500 up nearly 8% after a more than 10.5% rally in Q2. Both the Nasdaq and Russell 2000 posted double-digit percentage gains. Early tailwinds for stocks last quarter included the passage of new tax legislation and the reciprocal tariff deadline being pushed back to August 1st. Further tariff uncertainty was removed throughout the summer as trade deals were announced with the EU, Japan, and South Korea and tariff exemptions were put into place, especially in the tech sector.

Beneath the surface, leadership began to rotate in the second half of the quarter. Through the first seven months of the year, the five largest positive contributors to S&P 500 performance were Nvidia, Microsoft, Meta, Broadcom, and Palantir with Apple, Tesla, and UnitedHealth the biggest drags. After a softer employment print on August 1st increased the odds of a U.S. rate cut, the baton shifted: Alphabet, Apple, Tesla, Broadcom, and UnitedHealth led on the upside, while Nvidia and Microsoft were the two largest negative contributors. This could be a nascent sign that the rally is broadening and becoming less dependent on a narrow cohort of mega-cap winners. Fund flows echo that evolution. Capital has been moving into materials, industrials, and energy, an encouraging sign for breadth.

For now, the “Goldilocks” narrative, an economy not running too hot or too cold, continues to dominate across asset classes. Moderating economic data, coupled with a softer and balanced labor market, has bolstered the expectation of Federal Reserve easing, which many expect to cushion broader macro risks. Small and mid-cap stocks have shown renewed participation in the September rally, particularly within growth-oriented areas. The Russell 2000 Index has now advanced to retest its November 2024 cycle high, leaving investors eager to see whether this momentum can extend into the coming year.  

Our Thoughts on the Markets

Fed Resumes Rate Cuts and Issues Warning

In September, the Federal Reserve cut interest rates by 0.25% and issued guidance that two additional reductions may be on the table this year. Chair Jerome Powell noted emerging signs of labor-market softness as justification for the cut. The current market backdrop is unusual, with stocks hovering near record highs. 

While rate reductions with equities near records are uncommon, the historical outcomes have often been constructive. Since 1990, there have been 7 instances in which the Fed cut with the S&P 500 within 1% of an all-time high; near-term moves were mixed, but 12-month performance skewed positive. A broader look back to 1984 shows the index higher 9 of 11 times one year after the first cut (median ~14%), with 2001 and 2007, both recessionary episodes, the notable exceptions. When cuts are framed as risk management while growth remains positive, as in 1995 and 2019, market leadership often remains with high-quality growth until broader cyclicals confirm the trend.

Powell also made some interesting remarks about equity markets stating that they are “fairly highly valued” while also emphasizing that these levels do not currently pose broader risks to financial stability. JPMorgan strategist Fabio Bassi offered useful historical perspective by analyzing market performance following past Fed Chair warnings on valuations, beginning with Alan Greenspan’s famous 1996 caution against “irrational exuberance.” His team highlighted three key takeaways: first, such warnings have not historically triggered negative returns in the months that followed; second, while gains often moderated after these remarks, they typically remained positive, with U.S. equities outperforming international peers; and third, valuation assessments often rely on backward-looking measures that fail to capture shifts in market structure, such as today’s rapid advances in artificial intelligence.

Although today’s high valuations and market concentration invite comparisons to the dot-com era, important distinctions exist. Unlike the 1990s, today’s leading growth companies are producing robust double-digit organic growth, strong margins near 25%, and meaningful capital returns to shareholders. These fundamentals provide a stronger foundation for current prices.   

US Government Shutdown

There is no resolution in sight as the government shutdown enters its second week. So far, the market impact has been muted. Some economists have projected a 0.1% hit to GDP for each week of a shutdown, but that could double if the White House presses on with the reduction in government work force that it has proposed. Goldman Sachs also saw a negative impact to GDP but expected that would be matched by an equivalent positive effect in Q1 assuming the shutdown is resolved before then.

Bank of America was among those who played down both the market and economic impact of the shutdown, arguing that shutdowns matter less for markets and sentiment than potential debt limit breaches, which is not the case this time. They did note, however, that permanent government headcount reduction could make this case different.

This could also impact the Federal Reserve’s rate cut path as key data points will be delayed for as long as the shutdown continues.  

Schechter in the News

"The Alternatives Space is Not What it was 20 Years Ago" - Third-generation firm leader and managing director at Schechter Investment Advisors shares growth outlook for the RIA space, how he knew it was time to sell, and how his $4 billion RIA benefited from alts leadership. Read more  

Q&A: Why Did Schechter Decide to Join the Arax Team? - CEO Marc Schechter shares what led to the decision to join the Arax team, why he was initially on the fence, and his perspective on private equity in wealth management. Read more   

Schechter Personal

The Schechter team recently had the opportunity to gather in-person for teambuilding and strengthening relationships at Marc Schechter's family home, Casa Familia, in Punta Mita, Mexico. Thank you, Marc, for hosting us! 

New Teammates 

We’re excited to welcome Stefanie Jenkins to the Schechter team as a Client Service Associate on our Investment Advisory team. Stefanie joins us from Merrill Lynch, where she spent over five years servicing high-net-worth clients. She holds a bachelor’s degree in finance from Michigan State University and maintains her FINRA Series 7 and 66 registrations.

We’re thrilled to share that Marc Schechter’s son, Josh, has joined the Schechter team, marking a proud milestone as the fourth generation in the Schechter family to enter financial services. Josh is a University of Michigan graduate and earned his JD/MBA from NYU. Before joining Schechter, he practiced corporate law at Weil, Gotshal & Manges LLP, specializing in private equity and M&A transactions.   

Disclosure
Schechter Investment Advisor is a dba of Arax Advisory Partners, an SEC registered investment adviser whose principal office is located in Denver, Colorado. Opinions expressed are those of Arax Advisory Partners and are subject to change, not guaranteed, and should not be considered recommendations to buy or sell any security. Past performance is no guarantee of future returns, and investing involves multiple risks, including, but not limited to, the risk of permanent losses. Please be advised it remains the responsibility of our clients to inform Arax Advisory Partners of any changes in their investment objectives and/or financial situation. This commentary is limited to the dissemination of general information pertaining to Arax Advisory Partners’ investment advisory/management services.

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