Three Trends Shaping the Bull Market

Tim Hoyle, Chief Investment Officer
thoyle@haverfordquality.com

During the third quarter of 2025, the S&P 500 rose nearly 8%, recorded 24 all-time high closes, and was never down more than 2%. Heading into the final quarter of the year we anticipate three major trends from the third quarter will continue to power the market’s steady ascension.

• Easing monetary policy
• Strong earnings growth
• AI optimism, with some moderation

Easing monetary policy. Historically, markets react very well to rate cuts when the economy is growing and markets are near all-time highs. Tight credit spreads, wage growth, strong corporate profits, and low unemployment are all consistent with a low probability of a near-term recession, which makes monetary easing especially bullish. The tailwind of easier monetary policy may also be supercharged by recent corporate tax cuts and extension of the personal tax code.

Strong earnings growth.  Following last year’s 10% increase in corporate profits, earnings are projected to grow 11% in 2025 and 14% in 2026.  The broadening out of earnings growth to include companies beyond the tech-heavy Magnificent 7 stocks also is a positive development for the markets.  Broad earnings growth is indicative of a stronger economy and potentially more resilient markets.

AI optimism. The pace of AI infrastructure spending continues to accelerate as AI permeates all aspects of our lives. Tech giants are in an arms race to provide the computing power needed to meet expected demand. Lofty expectations and the amount of capital being deployed raises concerns of a bubble. We believe advancements in AI will eventually enable the tools to accelerate economic growth. However, thus far, tangible and widespread gains have been slow to materialize.

The AI trade may have gone too far, too fast, and could be due for a pause. While we have seen tremendous profits and stock appreciation accrue to the semiconductor manufacturers and hyperscalers, much of the rest of the economy has yet to materially benefit. We believe industries such as software, services, healthcare, and consulting will begin to benefit as AI is incorporated into the business processes.

While the ingredients exist for the bull market to continue, there is always the possibility that optimism sours and investors look to lock in this year’s gains. Low consumer sentiment, weaker employment data, or even political exhaustion could tip the scales. Investors should consider taking advantage of the strong markets to work with their portfolio managers to optimize asset allocations and planning.