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Q3 2025 – AI Enthusiasm
We’re about to finish Q3 and 2025 has already gone through a bear market back in April only to snap back into the current bull market. It’s been wild one to say the least and with continued AI enthusiasm, the Fed’s more dovish rate outlook and the continued earnings beats, we expect the bull to continue into 2026. This doesn’t mean that we’re not going to see some speedbumps along the way, and I do expect the pace of market gains to slow considerably. The bottom line is that the economy is humming along, there is still a lot of cash on the sidelines, companies are announcing huge investments in the future, and it seems that productivity growth is running higher than initially thought. If productivity accelerates further alongside Fed easing, we’ll have the best of both worlds: disinflationary growth and expansion.
US policy volatility and the prospect of slower US economic growth along with the Fed’s easing have resulted in a decline in the value of the dollar since the beginning of this year. As the dollar weakens, that’s typically a boon for international equities and as you can see in the chart below, they’ve been outperforming in 2025. I think that this trend will continue into 2026 and allocating a percentage of your portfolio ex-US will continue to reap dividends going forward.
Speaking of the recent outperformance internationally, it’s amazing how quickly we forget what’s going on in the rest of the world. This is a great graphic showing the largest companies ex-US by market cap. All we ever hear about are Nvidia, Google, Microsoft, Apple, etc., but there are some great companies out there.
The big question I have is where all the power for AI data centers will come from. If you look at the chart below, you’ll see that data center growth is only accelerating. Even if AI demand normalizes from blistering to merely outstanding, we’re going to be power hungry for years to come. What’s going to power everything? Nuclear, wind, solar, fossil fuel, something else?
Where are things ugly? The US housing market remains out of synch. Home prices remain high, sentiment remains low, and affordability remains constrained. Lower rates will help, but perhaps the biggest change comes from the Big Beautiful Bill which increased the deductibility SALT to up to $40k annually. If you live in California, or another high tax state, the BBB will allow for more deductions of state taxes. Also, make sure you evaluate whether to pay all your property taxes in the fall or spread them over 2 years.
Are sports betting and stock trading platforms going to merge? Streaming services are getting expensive. Is it best to buy one for a month, then binge? Here’s a look at a sample of the costs. If these kinds of things are a sample of the potential future benefits of AI, I’m all in.
Nick