Diamond Capital Management's Market Commentary
October, 2025
Jeff C. Mantock, CFA, CMT
Vice President, Chief Investment Officer & Manager
Executive Summary:
- The bull market in equities is intact! However, investors should expect bouts of volatility and muted returns in the months ahead.
- The U.S. economy is still going strong, and the odds of a recession remain low. We expect the Fed to continue cutting short-term rates, but the pace may be slower than anticipated.
- U.S. bonds are having their best year since 2020 as lower yields have lifted bond prices.
The bull market in equities remains intact! Once again, the S&P 500 has established new all-time-highs after
posting its fifth consecutive month of positive returns, up 21% from the beginning of May and 35% from its lows in early April. The rally in stocks has been supported by resilient corporate fundamentals, persistently strong momentum in the AI sector, anticipated Fed rate cuts, and solid economic momentum. Like many analysts, we believe stocks can climb higher through year end and into 2026.
That said, we anticipate some choppiness in the next few months and are paying attention to possible downside risks that could alter the current trend. Lofty stock prices amid an upcoming earnings season, high valuations, and uncertainty about Fed policy could lead to a pullback. If nothing else, the market has become increasingly vulnerable to a rotation away from high-priced mega-cap tech stocks. Hang tight! A crash is unlikely, but the gains from stocks could be muted in the months ahead.
The health of the U.S. economy is a key contributor to stock and bond market returns. While a near-term recession is doubtful, rising unemployment and lower consumer confidence signal potential softness. Fed Chair Powell pointed out growing concerns about the labor market as why officials cut the federal funds rate for the first time this year. However, lower initial jobless claims seem to underscore how companies remain reticent to lay off workers.
Real GDP grew in the second quarter at the fastest pace in nearly two years at 3.8%. Furthermore, U.S. personal spending rose at a solid clip in August for a third month, suggesting consumers continued to power the economy despite elevated prices.
The U.S. bond market is having its best year since 2020. Yields across the curve are lower on a year-to-date basis, and while this has limited the opportunity for investors to (re)invest cash at higher coupons, it has boosted bond prices. YTD total returns for bond indices are above average with capital appreciation contributing a large part of the investment gains.
The information and material contained herein is provided solely for general information purposes. This material is not intended to be investment advice nor is this information intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue. Certain sections of this publication contain forward-looking statements that are based on the reasonable expectations, estimates, projections, and assumptions of the authors, but forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Investment ideas and strategies presented may not be suitable for all investors. No responsibility or liability is assumed by The National Bank of Indianapolis, or its affiliates for any loss that may directly or indirectly result from use of information, commentary, or opinions in this publication by you or any other person.