• Financial Professional
Contact us
  • Financial Professional

Now leaving ThriventFunds.com

 

You're about to visit a site that is neither owned nor operated by Thrivent Asset Management.

In the interest of protecting your information, we recommend you review the privacy policies at your destination site.

Continue

Financial Professional Site Registration

Complete this form to get full access to the entire financial professional site.

By clicking “Register”, you agree to our privacy and security policies and that you are a financial professional.

Access will be granted immediately, but the registration process may take up to 5 business days to complete.

Thank you for registering

You can now enjoy all financial professional content.

If your download does not start automatically, click here.
Continue to Page

An error occurred

Please check back later.

OUR VIEW

A look ahead: Fourth quarter 2025 outlook

10/12/2021

10/21/2025

10/12/2021

A look ahead: Q4 2025 outlook

The labor market is a primary concern for investors and policymakers. Private payroll growth, excluding the distorting effects of the COVID-19 pandemic, is now near 15-year lows. Continuing claims (unemployment claims that extend beyond one week) are still low, but rising, and longer-term unemployment is reaching levels often associated with a recession.

While the job market could stabilize, weak employment can trigger a vicious cycle: Fewer jobs result in less spending, resulting in expectations of lower corporate profits and thus increasing layoffs. This outcome is not our base case, however. We remain optimistic that lower interest rates and a more business-friendly tax and regulatory environment should provide the needed support.

We expect equity investors to react favorably to future rate cuts, providing support to stock prices. Lower rates will help consumers by lowering borrowing costs, provide some support to an abnormally slow housing market and likely boost the economy. Additionally, lower interest rates will reduce the cost of financing the U.S. government’s debt—which is currently quite high—lowering concern about the deficit’s sustainability.

Tariffs, other policy decisions and an increasingly volatile geopolitical environment are major threats to financial markets. Despite these risks, we remain optimistic about the U.S. economy’s long-term ability to navigate uncertainty, innovate and deliver the earnings growth that drives market returns.

Related content
Capital Markets Perspective
Download the PDF

Asset allocation views: Current outlook

Icon of a pie chart with a pie wedge

 

Fixed income vs. equity

The broad economy remains in reasonably good shape. Personal income growth is steady, retail sales have firmed, and—unlike the previous two years—industrial production delivered consistent year-overyear gains throughout 2025.

Weakness in housing, soft consumer sentiment, and the potential for additional labor-market strain are legitimate headwinds, but none appear insurmountable at this stage.

The ongoing AI investment cycle, business spending supported by the July tax bill, regulatory easing, and the likelihood of further Fed cuts all argue for additional market support.

We continue to maintain a measured overweight to equity, reflecting cautious optimism amid a still-resilient economy.

Equities

Equities

Icon of a globe

 

U.S. vs. Int’l.

Developed international equities underperformed the U.S. large cap stocks by roughly 3% in the third quarter and by 2% over the past year. Meanwhile, emerging markets stocks, driven primarily by China, outperformed U.S. large stocks by 3% in Q3 and roughly matched performance over the past year. Our reductions to international, primarily developed, and increases to domestic in Q2 have proven beneficial thus far.

Looking ahead, we still expect domestic equities to outperform, supported by greater positive earnings revisions breadth, likely additional Fed rate cuts in a relatively resilient economy and tailwinds from the July tax bill’s capex-related tax incentives.

We maintain that structural issues holding the Eurozone back relative to the U.S. are largely still in place, including larger demographic challenges, a higher regulatory burden, and less innovation and investment.

 

Market cap

Over the last decade, exceptional stints of small-cap outperformance (20%+) have been associated with some particularly noteworthy event. These events include Donald Trump’s 2016 election victory, aggressive government response to the onset of COVID-19 in March 2020, and the vaccine announcement in November of 2020. The Fed’s recent shift toward rate cuts should provide greater relief to small-cap margins and could provide additional fuel for a low-quality rally. However, we are skeptical that this qualifies as a sufficiently compelling catalyst to bet against our longer-term preference to large-caps.

Structural issues with public small-caps compared to large-caps remain, as scale can be leveraged to a greater degree on multiple fronts, and it is still generally more attractive for small, fast-growing companies to stay private for longer.

We are modestly underweight small-caps, with an overweight to both large- and mid-caps.

Fixed income

 

Duration

We expect the Fed to cut two times in the fourth quarter and then proceed slowly. However, there are meaningful odds the Fed may cut less than expected should inflation be more persistent than expected.

We expect the curve to steepen as short-term Treasury rates decline, driven by Fed Funds rate cuts. Long-term rates should decline less due to continuing concerns over inflation, Fed independence and debt levels.

We are positioned close to neutral duration with long positions in the short end of the curve and short positions in the very long end of the Treasury curve. We remain positioned for a steeper curve.

 

Credit quality1

Spreads ended the quarter well below long-term median levels with both investment grade and high yield spreads in the lowest decile over at least the past 35 years. Investment grade spreads ended the quarter just a few basis points above the 20-year low.

The economic backdrop for credit continues to be supportive. Growth has remained solid, supporting strong corporate earnings, cash flow and balance sheet fundamentals. We expect the broad macro-economic environment to remain positive for credit with continued solid economic growth powered by a resilient consumer and strong capital investment cycle.

We are positioned slightly underweight corporate credit risk versus our long-term strategy within broad fixed-income portfolios. We favor higher quality fixed income such as investment-grade corporates, securitized credit, and the higher rated tiers of high yield. We also favor high-quality collateralized loan obligations (CLOs) over leveraged loans.

1 Credit Quality ratings are determined by credit rating agencies Moody’s Investor Services, Inc. or Standard & Poor’s Financial Services, LLC.

The Senior Investment Team is discussing the asset classes, sectors and portfolios they oversee at a macroeconomic level. The views expressed are as of the date given unless otherwise noted and may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or recommendations of any particular security, strategy or product.

Past performance is not necessarily indicative of future results.

Investing involves risks, including the possible loss of principal.

Related Insights