Investment Insights

After a volatile start to the year, markets turned broadly positive for the third quarter of 2025. The total return for the S&P 500 was 8.1%, while global equities also rose strongly with the MSCI World returning 7.5%. Europe, Japan, and emerging markets all climbed. The benchmark 10-year US Treasury rate (UST10) was down modestly in the quarter, starting at 4.22% and ending at 4.15% (down -7 bps). Looking at other indicators for the third quarter, the US dollar index (DXY) (+1.0%) stabilized after dropping in the first half of 2025. WTI oil (-4.7%) declined, while gold (XAU, +15.6%) continued to rally and reached new all-time highs.

President Trump put most of the most onerous tariffs on hold over the summer, and many companies had already stockpiled inventory ahead of the announcement, allowing the economy to withstand the uncertainty presented by the new levies. We note that 2Q25 GDP came in at a strong 3.8%, after a -0.5% contraction in 1Q25.

The Fed cut rates by -25 bps at both its September and October meetings, bringing the Fed funds rate to a range of 375-400 bps. However, Fed Chair Powell cautioned that another cut in December is not assured. Core PCE inflation remains well above the Fed’s 2% target, with the most recent monthly reading at 2.91%. As we noted previously, we believe the Fed’s recent rate cuts were warranted by evidence of slowing in the labor market. That said, we do not believe there is much more room to cut under current conditions given the persistence of elevated inflation, which presents a conflict in its dual mandate. Once Fed Chair Powell’s term ends in May 2026, we expect a more dovish Fed Chair to take over.

As we approach the final two months in 2025, it has been another positive year in both equity and bond markets. Our base case that U.S. growth would remain positive for 2025 has proved correct, and at this time, there appears to be steady economic momentum despite lingering worries. We continue to see downside risks, however, especially as it pertains to the possibility for markets to reassess the impact and valuation of AI-driven tech equities. After closing below 5,000 on April 8, the S&P is up by 37% in just six months and is nearing 7,000. We caution that this kind of momentum is unsustainable. We further note that the largest 7 companies in the S&P account for over 35% of S&P index, and NVDA alone represents 8%. We believe that well diversified portfolios remains prudent in light of the record concentration in the S&P index.

Portfolio Changes

Following the conclusion of the quarter, our investment committee affirmed the investment allocations and underlying fund selections across all strategies. The investment committee also discussed the possibility of an allocation to “real assets” such as real estate or infrastructure to serve as a modicum of inflation-protection, given the lack of further progress form the Fed in reaching its inflation goal. Industries such as utilities, real estate, and infrastructure are critical and supply constrained, with the ability to adjust pricing in-line with inflation. While the committee agreed in principle to consider the change, we continue to consider the best way to implement our investment views within the managed portfolios and have not implemented any rebalancing as of this writing.

We continued our partnership with global investment management firm BNY Mellon for consulting services on the advisory portfolios, and any changes in the portfolios that are approved by the investment committee will be implemented at our discretion going forward.

Summary Market Views
In the table below, we update our Amerant Market Views, which represent our investment team’s tactical views based on investment valuations and macro trends. As a reminder, these are not client-specific recommendations, and clients should always consider their long-term financial goals and objectives when determining their asset allocations.

We made one minor adjustment to our views on equities, moving from underweight to neutral on U.S. Large Cap Growth. While we remain wary of concentration in the mega-cap tech stocks, we moved to neutral given strong third-quarter earnings, stabilization of trade policies and economic expectations, and broader market participation beyond mega-cap tech equities. So this change was based on a broader growth story for the U.S. economy, despite our concerns about concentration in mega-cap tech. The adoption of an allocation to real assets would likely be sourced from the value or dividend style buckets within the portfolios.

As for fixed income, we maintained our overweight allocations to investment grade and securitized debt, because we favor an “up in quality” credit bias as we note that spreads remain rather tight in historical context. We believe that for clients with a relatively long-term investment horizon, the carry offered by the intermediate part (7-10 years) of the yield curve is most attractive. We also maintain a neutral position on high yield and emerging markets (EM) fixed income (in U.S. dollars). That said, we believe the attractive carry on both high yield and EM debt is important for clients that are focused on income. We continue to view the income generation of fixed income favorably, although we are thoughtful that real returns will be impacted by the Fed’s success on bringing down inflation over the intermediate term.

This information is being provided for informational and educational purposes only to support our general market commentary. It should NOT be interpreted as investment advice regarding any specific security or investment strategy. See the disclosures at the end of this presentation for additional important information.

Looking Ahead to 2026
In last quarter’s note, we stated that “we have a more sanguine view of the economy overall and believe that the Trump administration has shown a more pragmatic approach in tariff policy.” As of this writing, 3Q25 GDPNow is indicated at 4.0%, indicating continued economic strength.

With the government shutdown entering its second month, there is relatively little macro data to guide the markets. However, we note that the final employment data before the government shutdown did show notable weakness in hiring, which could be indicative of future weakness in growth. In terms of corporate fundamentals, 3Q25 earnings season has started off on positive note, with most of the Magnificent 7 reporting healthy earnings and guidance.

Looking at markets, we sense that recent equity market gains appear unsustainable, although we acknowledge that the U.S. economy remains healthy overall. At this juncture, we do not foresee much incremental upside in equity markets after three strong years but encourage clients to stay focused on the long term in their investment strategies. In fixed income, we see risks as balanced and believe this asset class is best for investors looking for income rather than capital appreciation heading into the year ahead.

Notes: Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (EMB ETF), Emerging Markets Sovereign (LCL) (LEMB ETF), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond). Source: Morningstar. (1) Strategy returns net of mutual fund expenses and Amerant Investments standard management fees.

On these tables, you can see index and strategy returns for the first, second, and third quarter of 2025, compared to 2024 full year performance.

The third quarter of 2025 experienced strong positive returns in U.S. equities and more modestly positive fixed income returns. For the year-to-date, asset class returns are broadly positive.

For the third quarter, returns were positive across all strategies. Large-cap equities remained the primary driver of equity market returns for the quarter. This continuing trend contributed to a relative underperformance in the growth portfolios, as our well-diversified approach intentionally avoids heavy index concentration. The Income strategies continue to emphasize distribution income and maintained a strong performance for the third quarter. All the funds included in the portfolios are hedged back to the U.S. dollar, driving underperformance relative to unhedged portfolios as the dollar fell materially earlier this year. As always, we will communicate any changes in our views and positioning going forward.

⁽¹⁾Returns may vary. Past returns are no indication of future performance. Returns up to February 2020 are based on A shares, which were used on the portfolios up to that month, net of the then standard AMTI 1% management fee. Returns from March 2020 to June 2021 are based on I (or similar) shares, which have no 12b-1 fees, net of a standard AMTI 1.25% management fee. Returns starting July 2021 are based on I (or similar) shares, which have no 12b-1 fees, net of a standard AMTI 1% management fee.

For the one year through 3Q25, the Income Portfolio returned 2.8%, the Income & Growth Portfolio returned 5.6%, and the Growth Portfolio returned 11.5%.  The longer-term performance figures remain positive across all strategies.

As always, we take the trust you have placed in us very seriously. In our day-to-day operations, we continue to follow current events and the reactions of the markets closely, and we stand ready to adjust your portfolios accordingly.

To obtain more detailed information on our market views or the performance of your advisory portfolio, please contact your investment consultant at Amerant Investments by calling (305) 460-8599.

Sincerely,

Amerant Investments, Inc.

https://www.amerantbank.com/