What accounts for the economy’s resilience? Will it continue through the end of the year? 

So far in 2025, the economy has shaken off worries of a recession and has been surprisingly resilient. Coming up, we will let you know our thoughts on if it will continue through the end of the year. 

From Thrivent Asset Management, welcome to Advisor’s Market360^TM, a podcast for you, the driven financial advisor. 

As we head into the fourth quarter of 2025, there are persistent questions about the markets and the economy overall. Questions such as: Will artificial intelligence pay off for companies? Will unemployment tumble into a problematic landslide? What’s happening with consumers and their mindsets? And in the tug of war between inflation and the Federal Reserve, what is going to win? To answer these questions and many more, we tapped into the knowledge of our outstanding team of Thrivent Asset Management experts: Steve Lowe, Chief Investment Strategist; David Spangler, Vice President, Model and Mixed Portfolios; and Kent White, Vice President, Fixed Income Mutual Funds. 

Let’s get into it… 

First, we wanted to hear more about the markets. Although they have been volatile, the economy has been surprisingly resilient, especially considering that many forecasters were expecting a recession. We asked Lowe why the economy has been so resilient… 

Lowe: The economy has held up much, much better than expected, especially given the high level of policy uncertainty—tariffs and government layoffs and other policy action. Recession odds at one point hit 65% on Polymarket, which is kind of an online forum, but that's receded down to under 10%, so you've had a huge change in expectations. Part of that is that rates have fallen, particularly what are called real rates, which are interest rates after the impact of inflation. And consumer spending has held up pretty well, and income has been solid, and unemployment is rising, but it's still overall low compared to history. 

We also wanted to hear what Lowe had to say about the markets: 

Lowe: What drives markets over time are earnings. Earnings have held up very well and better than expected, and they've been revised up repeatedly. Corporate America, corporate fundamentals are very solid right now. To some extent, expectations for artificial intelligence have supported markets, particularly the mega-cap tech companies have. That's been supported, but it's also a key risk out there if AI does not pan out. Then there’s still a lot of liquidity, meaning that there's a lot of money circulating in the world. Investors have been very quick to buy any dips. 

Since we have multiple experts, we wanted to get another take on the economy. Here’s what White had to say: 

White: I think it appears we've entered what I would consider a soft patch in the economy right now with below-trend growth, likely driven by a tariff and trade policy uncertainty. The August jobs report reinforced this view with only 22,000 jobs being created, which was much lower than estimated in the second weak report in a row. The labor market is clearly flatlining, not adding jobs. It's reflecting both weaker supply and demand for labor. But we're not losing jobs either, at least not yet. The labor market, in my view, remains the key downside risk. It seems that companies just don't appear willing to hire until there's greater certainty around the impacts of trade policy. It's also possible it's a supply-driven shock caused by immigration restrictions. 

Here's Spangler’s take on the current state of the economy. 

Spangler: It is an unusual labor market in that we have lower supply and lower demand. That is resulting in a top-level unemployment rate that is historically low—in the low fours. But we think that that's masking weakness underneath. What we see is a slowing and deteriorating labor market, but we also believe that we're not past the no return. Areas of weakness are continuing claims. They're low but rising. Private payrolls are deteriorating. They're at a 15-year low if you take out the COVID period. State payrolls are deteriorating in a number of areas. We have construction permits, which are down. They're at a cycle low. Leads to declines in construction jobs historically. All these data are confirming the conference board survey that says that jobs are hard to get, which is at about a four and a half year low as well. What do we expect is that in the absence of intervention, we would believe that we would have a continuing slowing deterioration. 

Since consumers are the primary drivers of the economy, we wanted to learn more about the health of the American consumer. Here’s Lowe: 

Lowe: Overall, consumers are in good health. And that’s really important because they drive about two thirds of the U.S. economy. You know, if you look at income gains have been solid and ahead of inflation, that delinquencies are moving lower, outside of student loans. But this varies a lot depending on income levels, which is really all that, always with the consumer, you know, high income people are doing better than lower income people. 

We also wanted to hear Lowe’s thoughts about current consumer sentiment. Specifically, whether consumers think they are doing okay in today’s economy.  

Lowe: Sentiment overall is depressed somewhat. People rate the current conditions better than they do the future. They’re very apprehensive about the future. I think a lot of that has to do with unease about politics. Many consumers said they worry about finances, and in particular budgets are stressed due to high prices. They’ll say buying conditions for a house are poor, buying conditions for a car are poor. A lot of that has to do with still relatively high interest rates. Then there's a growing concern about the job market. You’re seeing consumers seek out value in some ways. They're eating out less or seeking less expensive options. On vacations, they’re not flying and planning a trip as much as buying a prepackaged cruise package for less money. Bottom line, I think they’re doing well overall, but there are increasing signs of weakness or softness.  

The Federal Reserve has a dual mandate of keeping inflation in check and unemployment low. Given this tricky balancing act, we wanted to get White’s opinion on where interest rates might be heading: 

White: Given our views and our thoughts on a Fed that is likely to continue to cut rates into year-end, we think there’s likely to continue to be some downward pressure on interest rates. A lot of this is already priced in with a two-year Treasury rate currently at its lowest level since 2022, but there’s probably still some room to go there. Until we see some evidence the economy is beginning to re-accelerate and we see the job market begin to add jobs again, the path for rates is likely to continue to remain lower. 

Based on that view, we wanted to know how the Treasury curve might react. Again, here’s White. 

White: We talked about the Fed’s dual mandate earlier and how they’ve been in a tricky spot lately, just balancing those two, the inflation and employment situations. It’s really been the same thing for bond investors. The balancing act between jobs and inflation is playing out in the job market, too, especially in the Treasury curve, levels between the front end and the back end. When I refer to the front-end, it’s more like two years and in where the Fed has a little bit more influence than 10 years and longer, or what we consider the long end. Investors have been gravitating towards the front-end, anticipating rate cuts by the Fed, which has steepened the yield curve. A steeper yield curve means that short-dated U.S. Treasury yields have been declining more so than long-dated yields like the 30-year. This steepening is likely to persist if we're correct, and the Fed continues to cut rates. Short-term yields typically follow the Fed funds rate. However, with the Fed increasingly tolerant of higher inflation and increasing fiscal pressures, when you move out the curve into the 10-year and 30-year maturities, you're exposing yourself to a lot more inflation risk. At the same time, the Fed appears to be less focused on that part of their mandate and less focused on moving it back towards their target. Investors should look for more compensation on that part of the curve until there's evidence that they do, and that's what we refer to as the term premium. The term premium has increased, so there's additional risk in the 10- to 30-year part of the curve. 

So far this year, credit markets, like investment-grade and high-yield bonds, have performed well. We wanted to know whether White anticipates that to continue. 

White: Credit markets have been performing very well this year, and especially given some of the risks that we’ve been talking about, they do seem priced for perfection or very little risk is being priced in. Credit spreads or the additional yield over U.S. Treasuries for investment-grade credit are currently at the lowest levels in over 27 years. High yield spreads are also not too far off their lowest levels. It’s not just in corporate credit. We're seeing this across almost every fixed income asset class and sector. It really gets back to this insatiable demand for yield. People have been buying yield instead of spread. I think we do need to be a little bit more careful, especially if the economy is potentially at a weaker turning point, potentially. Make sure you're getting compensated for that because you’re not getting really compensated for a lot of the risks that are out there. We’re not anticipating a spread widening event, but we are expecting volatility to pick up a little bit this fall. On the other hand, corporate balance sheets are in really good shape. Fundamentals look good. Overall, we're not concerned about the health of our corporate issuers. 

Let’s now turn our attention to equities. So far, it has been a volatile year in equity markets. We asked Spangler what he anticipates as we head toward the end of the year. 

Spangler: Well, it’s always hard to predict the unknown unknowns. One tweet, one change in policy, it can really rattle the markets. Interesting, though, is that really the volatility was early in the year, and it was in a compressed time frame. Other than that, it actually hasn't been terribly volatile. In fact, the VIX is at this point sitting at about 14 or 15. That’s well below long term averages for the VIX. Also, it’s below its 200-day moving average. This is actually a good setup for the markets and constructive for the markets. September and October can be historically weak in terms of seasonality, and so you can get a little bit of volatility. I think that if you did see any volatility due to seasonality in general in September and October, it might be an opportunity to buy into the markets at that point. 

You heard Spangler mention VIX. To clarify, the VIX index refers to the CBOE Volatility Index, which is used as a barometer for market uncertainty. Next, we wanted to hear from Lowe about the key factors that will drive markets for the rest of the year.  

Lowe: If you look at what has driven markets beginning of the year, April was uncertainty over trading and other economic policies, tariff announcements. The S&P 500 tracked uncertainty very, very closely, but that's diminished to a large extent and markets are much less driven by policy right now and uncertainty. They have been very momentum-driven at times where the strength of the market in a sector leads to further increases. What works keeps working. You've seen that in particular with large-cap tech, think of the Mag-7. There's still a lot of liquidity in the market right now and money that needs to be invested. You're starting to see investors take more risk. Margin debt, where people borrow to invest in the market has been very high compared to normal levels historically. I think the key driver, however, is that fundamentals are strong. Earnings have held up much better than expected. Earnings or visions are very positive. If you look at markets over the long run, they track earnings very closely. The AI mega cap tech leaders in particular have given a lot of the gain. A large percentage the market gain. It's been a very narrow market, and that's a little bit of a concern because narrow markets ultimately broaden. 

We wanted to hear if Spangler also had concerns about the narrow breadth of the market. 

Spangler: Yes, the market is pretty concentrated, historically speaking, and one should be concerned when something is unusual, and it is unusual to be this narrow for this length of time. It doesn't necessarily mean, though, that, again, anything is impending or about to happen. Today, large-cap tech in the areas in the markets that are highly concentrated are very well supported in terms of their free cash flows, their earnings, their earnings growth, their very low debt, very high quality.  

We asked Spangler about the recent performance of small-caps. Specifically, was that performance driven by fundamentals or were they just riding the wave? 

Spangler: I think it can be both, which is to say that more recently, small-caps have had better earnings. In fact, in the second quarter, they had some of the best earnings growth they've had for a long period of time. On the other hand, it still significantly lags large-caps, and I think will probably persist into the future. 

Another bright spot for equities is international markets. We wanted to know whether Spangler thinks this is a persistent trend and if he anticipates it continuing. 

Spangler: That’s a complicated question in that it's two parts. One is fundamentally and economically, whether international can perform better over the intermediate longer term. And then relative to the U.S., I think in that count…likely not. Which is to say that the international performance that we saw that was supported earlier in the year was really through about mid-March, and that was about it. Now, since that period, international has underperformed both in emerging markets and developed. A lot of the performance was in currency. In the beginning of the year, it was both fundamentally driven economically and currency, more or less equally. But since then, it’s only been in currency where the international markets have done a little bit better because of a devaluing dollar. If you actually look at it on a local-to-local currency basis, international has underperformed quite a bit since about mid-March. 

Next, we wanted to hear about what is concerning our experts as they look ahead. We will start with Spangler: 

Spangler: Well, come the end of the month, we have a budget that we have to pass in order to fund the government. The debt ceiling itself won't be an issue. We resolved that, but the budget does need to be passed by the end of the month, and we'll see whether there's any drama that comes with that. There could always be further meddling in terms of the Fed. That would be an issue that we would want to keep an eye on. And whether we get a hawkish type of Fed rate cut in terms of language for further rate cuts. The market is expecting a dovish Fed or if it's expecting more rate cuts than what’s actually ultimately delivered, that would be a risk that I would be concerned with. We’d also want to keep our eye on the rapid deteriorating labor force. We don't think that’s what’s in the cards. We don’t believe that that’s going to happen, but it is always something that happens quickly and surprisingly. We want to keep our eyes on that. Other than that, there’s always the geopolitical and turmoil from tariffs that could pop back up again. 

Here’s what is concerning to White: 

White: Probably most concerned, the same as David just mentioned, that either the labor market or inflation end up worse than we're all expecting or the market is expecting. Either one of these outcomes would likely be negative for risk markets. Obviously, labor market is worse. It would signal that the economy is really deteriorating. If inflation, if we had a lot more tariff pass through than we expect, that would handcuff the Fed's hands. That's probably top of my list. I'd also agree that Fed independence is a major risk factor, especially for the bond markets. Right now, it's somewhat priced in. If it got any worse than what we're talking about right now, though, I think the bond market would react pretty negatively. Then finally, we've I mentioned earlier on credit valuations across nearly every asset class, and not just in credit. Maybe it's equities, too, that valuations seem to be a little bit stretched. Those would probably be the primary ones that I'd be most worried about. 

Lowe has similar concerns: 

Lowe: Well, the erosion of Fed independence is up there. That's a concern. But also that artificial intelligence will not fulfill high expectations. The leaders in particular will not be able to monetize it to the extent that the market expects. I think that's a key risk for markets. Then also, breadth is narrow. That doesn't really matter in the short term or in the immediate. But if you look out over 10 years or so when markets are very concentrated, forward returns are usually not that great.  

While our experts have their concerns, there is also potential for optimism. What could go right and be better than expected? Here’s Spangler: 

Spangler: It could be a dovish rate cut and a rate cutting cycle that the market expects, or even more than the market expects would be positive for the markets. Employment remaining stable. I think that the wealth support can continue to support the consumer, and I think that's positive for the markets and supports economic growth as well. And fiscal stimulus and deregulation, those economic supports that are coming in at the end of the year and into 2026. Take it all together could be relatively positive for the markets. 

Here’s White… 

White: I think the market and myself, too, have been underestimating just how resilient the U.S. economy can be and how resilient the consumer has been. That would be another thing that we need to continue to go right. Just the economy keeps surprising the markets with its resilience and companies begin to add jobs again. I think that would be a really good thing once we see that. That would support consumer spending and employment and everything else. I think we need to see that. 

And then we asked Lowe what he would like to see: 

Lowe: Yeah, I guess first it would be strong earnings. They're already going well, but I think they can get stronger. It's a real tailwind for the market. Margins are improving as our forward earnings expectations, and especially if the large-cap tech names can monetize artificial intelligence, and they're already extremely profitable. They get more so. Then just stronger economic growth than expected. We talked about the tailwinds of deregulation that's very positive for small businesses in particular, and then some of the changes in the tax law, such as 100% expensing of structures and CapEx. That could be very, very positive for investment.  

Finally, we wanted to learn how our experts are positioned for the coming months. We will start with Lowe: 

Lowe: We're still moderately overweight equities and somewhat underweight fixed income versus our peers. We're fairly close to home but have a positive view of the market. There's some concern, particularly over the labor market and a slowing economy, but we're still our base, moderately overweight equities. 

Here’s how Spangler is positioned: 

Spangler: We’re overweight, overall risk assets, we’re overweight equities. Within equities, we're a little underweight in public equities, but then combined with private equity, we're at a little bit above our long-term strategic positioning, which is a little overweight or overweight to our benchmarks. Within asset classes, we're overweight large-cap or overweight large-cap tech. We're overweight a little in mid-caps. We're overweight in small-cap in public. And then overall, domestic, we're overweight, and we're overweight relative to international, predominantly in developed. So developed is where we're underweight. We're underweight in Europe, we're underweight in UK, probably about even in Japan. But overall, it's developed where we're underweight. We're at or maybe even slightly overweight in EM, but overall an international underweight relative to the domestic side. 

And last up is White with his positioning for fixed income: 

White: On the fixed income side, we're still pretty up in quality across most of our funds. What that looks like is generally we're a little bit underweight corporate credit and overweight things like U.S. Treasuries, mortgage-backed securities, which is one of the few fixed-income asset classes that isn't at its historical heights. We see some value there. We're also up in quality in terms of credit ratings within our corporate portfolios. It just gets back to valuations right now. There's not a lot of excess credit spread or yield in corporates right now, and it won't take much spread widening for that incremental yield to evaporate if we do get into a softer environment. Just across the board, just being really cautious about where we put our money and really relying on our research teams to find alpha where there is some. That's one of the things that we pride ourselves on, is just a solid research team and being able to pick those spots. 

That wraps up our fourth quarter outlook. Once again, we would like to thank Steve Lowe, David Spangler and Kent White for their insights. What did you think of this episode? Email us at podcast@thriventfunds.com with your feedback or questions for our experts. Want more episodes of Advisor’s Market360 and other market and investing insights? Visit us at thriventfunds.com, where you can learn how we can partner with you, the driven financial advisor. Bye for now. 

All information and representations herein are as of 9/8/2025 unless otherwise noted. 

Past performance is not necessarily indicative of future results. 

The views expressed are as of the date given, 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 a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance. 

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