Q3 2025 MARKET COMMENTARY
The third quarter of 2025 proved to be another positive quarter across a wide array of assets. We saw the Federal Reserve cut rates 25 bps point at their September meeting, their first rate cut since December of 2024. While the market usually cheers interest rate cuts, we’d like our investors to understand that the Fed is generally only cutting rates if they feel inflation is below or heading below their 2% target (Not the case currently) or the job picture has weakened or is already turned negative (The primary culprit). It’s tough to predict what the Fed will do with their two remaining meetings this year (October & December), but the interest rate curve suggests we could see at least another 50 bps in additional cuts by year end. I was on a webcast presented by Alpine Macro in September that focused on comparing 2025 to 1998, which stirred some interesting thoughts on our end and has assisted with building our high-level framework for our investment approach over the next 6 months (More discussion to follow).
Equity
We’ll lead off with Public Equities as it’s the most talked-about area of investing and relevant to just about every investor in our practice. For Q3, the S&P 500 continued its march higher finishing +14.66% YTD return through 9/30/25. The Nasdaq, with its tech champions, finished up as well +17.87% YTD through 9/30/25, and Russell 2000 which represents US small caps, rebounded nicely in the quarter finishing +10.36% YTD through 9/30/25. [1]
Our philosophy around owning Public Equities has encompassed the following 1) Focus on owning high quality businesses – the strategy of indexing, where you effectively own all companies (Great, average & poor) has never made a lot of sense to us 2) Look to invest in businesses that exhibit pricing power due to limited competition 3) Look for businesses that are durable that can survive hard times – stock prices go up and down, but a durable business won’t go bankrupt and will increase in value over each economic cycle 4) Where we feel we have competency, own the individual companies, where we don’t, utilize a passive basket like a sector ETF or active management through a mutual fund. Also, as part of our investment philosophy we prefer to invest new capital into areas that are unloved or what I refer to as “Orphaned” and wait for the market to rotate capital into that area. With experience has come the understanding that while the broad indexes represent returns for a broad basket of stocks, under the surface there can be a lot of turbulence sector to sector and stock to stock. We want to position our clients where we believe the puck will be going and try to arrive there before the herd shows up and bids prices much higher.
The third quarter presented us with an opportunity to hear from our companies for the first time in the ever-changing tariff environment. By and large most of our holdings presented their quarters as expected, but we had some outliers to the positive and negative which we’ll comment on below. On the positive front, all three of our gold mining positions (One ETF and two individual company investments) continue to shine (Sorry couldn’t help myself 😊). As the price of gold continues to climb (Almost doubling here in the last 2 years) gold mining companies have seen their profitability and free cash flow explode to the upside. As of now our individual companies are being smart about their free cash flow by paying down debt, buying back stock and investing in their projects that have the potential to yield the best production results as we move forward. They are also looking to sell non-core assets while buyer interest is high, and those assets can be sold at premiums. What we’ll continue to watch for is M&A – often when mining companies opt to announced M&A deals, they get the timing wrong and tend to overpay, something we’re not interested in. Should our holdings stick to the kind of allocation decisions we are seeing, we are happy to continue to own them, especially as gold prices continue to appreciate. Second, one of our Med-Tech holdings which I’ve mentioned to clients on our calls announced revenues and earnings for the quarter that exceeded expectations and for the second quarter in a row, management raised their forecast for 2025, sending the stock to all-time highs. As I’ve mentioned previously, with this particular company, my concerns have revolved around teo items – changes in government regulations and the second being an M&A announcement (With the privilege of writing this in early October, we know the company has entered into an M&A transaction that’s expected to close by the end of 2025 – more comments to follow on our Q4 Commentary). Finally on the negative front, we decide to fully divest from one our REIT investments that focused on real estate to service the cannabis industry. Management announced that they were making a 270-million-dollar investment into a private life sciences real estate company – a transaction that we did not like/agree with for a variety of reasons. We had entered the investment years ago as what we felt was a risk-adjusted way to invest in the potential growth of the cannabis industry. The investment proved to be more difficult than we estimated as cannabis producers continue to grapple with over-supply and competition from illicit sales that undercut their products/pricing. Management’s decision to add debt to the balance sheet and to effectively change direction with the company by investing into Life Sciences real estate tells us the they do not see a positive turn coming in their core cannabis real estate business any time soon. Therefore, we have opted to exit and reinvest client capital into three areas 1) Traditional Industrial Real Estate which we believe will be on the upswing in 2026/2027 2) A leading company in the vehicle auction space 3) An ETF invested in Artificial Intelligence, Automation & Robotics. While we hope all the seeds we plant turn into beautiful flowers, sometimes weeds instead sprout and we are forced to pull those weeds.
Private Equity as usual, didn’t move a whole lot in the quarter. The IPO market has continued to open up, and we saw some household names that have threatened to go public finally offering shares into the market. However, transaction volume continues to be challenged. We think PE is waiting for interest rates to cycle lower and perhaps for multiples to move up – but as this would motivate sellers to seek transactions, we’re not sure if buyers will be as enthusiastic to transact – we shall see. For now, we are content with our strategies focused on the Secondary Markets where investors are clamoring for liquidity and are often forced to sell their positions at discounts to the funds we own. If the IPO market can continue to pick up steam as we go through the end of 2025 into 2026 and start to attract listings from some of the most sought-after private companies waiting in the wings to go public, private equity returns may begin to take a nice jump up.
[1] Bespoke Report 6/27/25
Real Estate
Returns in Commercial Real Estate have been tough sledding since Q4 of 2022 – as interest rates have risen, so have Cap Rates, causing the value of buildings to fall. However, we are seeing green shoots that lead us to believe we’re seeing a bottoming process. We’ve seen an uptick in new investment coming into the area and for those brave enough we are even seeing Office Buildings being purchased. Perhaps more interesting have been the cracks that we are starting to see in the single-family residential market. Due to the generationally low mortgage rates in the early 2020s, homeowners have largely chosen to stay in their existing homes, causing for sale inventory to be incredibly low over the last three years. Typically, when mortgage rates double as they have in recent years, we would see an adjustment lower in for sale prices, but that has not been the case due to steady buyer demand and incredibly low inventory for sale. This dynamic however may finally be changing, not so much because listings are suddenly flooding into the market, but rather, buyers have started sitting on their hands. One San Diego realtor recently commented that our local market in recent years has had about 3 months’ worth of inventory (Meaning it would take 3 months to clear all of the existing homes for sale from the market), currently we are looking at 7 months of inventory. For those sellers that aren’t particularly motivated, they’ll simply pull their listing off – but for those that need to sell, you’ll start to see price reductions… and perhaps negative comps, something we haven’t seen in quite a long time. Could this change in buyer behavior be a short-term blip due to market volatility? Perhaps, but we think it’ s combination of the level of unaffordability (Price of the home combined with cost to finance) as well as confidence around employment. Who wants to run out and make a new major purchase if they aren’t fully confident in the job that produces the income to service it? IF we see a dip in mortgage rates into the 5% range over the next year, we could see a resurgence in buyer behavior, but for anyone looking to sell their property, we suggest using that time period to complete a sale.
Debt
Debt markets continue to be generally boring; however I’ve noticed some aggressive selling in the last 45 days in publicly traded BDCs (Business Development Companies). While we don’t own any of these holdings, Private Investment Sponsors will often issue Private Credit Funds – BDCs (Which we do own) and then also Publicly traded BDCs run by the same management teams. They often own similar loans from similar companies but in different allocation amounts. The aggressive selling in this area is at odds with what we are seeing in Senior Bank Loans and High Yield Corporate Credit – both of which are flat. Does this mean there’s something wrong with our Prive Credit Investments? I don’t believe so, but the market has a way of issuing warning signals for those paying attention. Someone is selling – could it be the retail investors often holding these for income… or is it Hedge Funds shorting these securities looking to send them lower to make a profit? – we don’t know. I continue to inquire with our contacts at each firm who assure me nothing is wrong with the pools we are invested in – but we will continue to trust but verify as we move forward with investments in this part of the market. With the Fed deciding to cut rates in September and the market assuming we’ll get 50 bps in additional cuts by year end – we are confident that short term cash rates will head lower. So will SOFR, which is the index rate for our Private Floating Rate Loan Portfolios. The bigger question is whether we will see long term rates (10 years or longer) adjust – there are cogent arguments that would expect rates to move higher or lower as the Fed cuts rates – right now it’s too early to tell. We think if economic growth ticks up and inflation expectations remain elevated, then we could see those longer-term rates head higher. If the job market were to weaken substantially and/or we saw the Fed opt to again start buying Treasuries and mortgage bonds, we could see rates head lower. President Trump wants lower rates and he’s in control of selecting the next Fed Chair early in 2026, so we may see lower rates one way or another. For now, we have not seen a breach of the 3.6% to 5% range on the US 10 yr. treasury – if at some point we do, we believe it will not be a positive development. Either Inflation has become a problem, or we are in a recession – neither would be good for our client portfolios.
Digital Assets
Q3 2025 marked a turning point for digital assets in the United States, with a clear shift toward crypto-friendly policies. A major milestone was the signing of the GENIUS Act in July, which introduced the first comprehensive federal framework for stablecoins. Issuers are now required to back their tokens with cash or short-term U.S. Treasury securities, publish monthly reserve disclosures, and undergo annual audits when operating at scale. This legislation enhances transparency and consumer protection, signaling growing institutional confidence in the digital asset ecosystem. In parallel, the CLARITY Act was introduced and passed by the House (pending passage as of October 3rd by the Senate), aiming to establish legal definitions for key terms such as blockchain, digital asset, and digital commodity. It also outlines the roles of the SEC and CFTC in regulating digital asset offerings. If passed, this act could significantly reduce regulatory ambiguity and foster innovation across the crypto sector. One of the most notable trends in 2025 is the emergence of Crypto Treasury Companies, publicly traded firms that hold a significant portion of their assets in cryptocurrencies. While Bitcoin remains the dominant choice, recent months have seen increased adoption of Ethereum and Solana. These companies offer investors indirect exposure to crypto markets, as their stock performance often mirrors the price action of the digital assets they hold. This creates a bridge between traditional equity markets and the rapidly evolving crypto space. What does this mean for investors? One word: opportunity. With interest rate cuts providing tailwinds and broader access to crypto investments, whether through Crypto Treasury Companies or newly launched ETFs, investors should seriously consider whether digital assets deserve a place in their portfolios. At Koa, we’ve developed a Digital Asset Investment Model Portfolio designed to give clients diversified exposure to the leading cryptocurrencies, Bitcoin, Ethereum, and Solana, as well as the company’s driving innovation and infrastructure in the crypto space. This model offers a strategic entry point into the digital asset ecosystem through a professionally curated approach. If you’re curious about the portfolio or want to explore how crypto could fit into your investment strategy, we’d love to connect and discuss further.
As I mentioned earlier in this update, there are many similarities here in 2025 to 1998. Asset prices are high, and the Fed is starting on a rate-cutting cycle that will provide more liquidity to markets. There are trillions of dollars sitting in Money Market Like Investments currently earning 4% — if the Fed were to push the Fed Funds rate down much further (For instance to 2%) you could see the following 1) Cash move out of these short term investments seeking higher returns in other assets – sending those assets even higher 2) Loan activity would likely pick up – as you could see more demand for credit from Consumers and Businesses and banks may be willing to give it to them if they can’t earn much parking their excess deposits at the Fed overnight or earn much buying Treasury/Mortgage bonds – creating more capital in the economy to send asset prices higher. In 1996, then Fed Chair Alan Greenspan gave his infamous “Irrational Exuberance Speech” – effectively saying he thought asset prices were too high. By 1998, Markets continued to power higher and the Fed was going to raise rates to tamp things down. While they ultimately did raise rates early in 1998, they were forced through conditions at the time to cut rates through the back half of 1998. It’s possible that these lower rates were a contributing factor to the absolute blow-off top that happened in markets (The Nasdaq for instance roughly doubled in value from October 1998-March of 2000). If we are going to “Party like its 1999”, we welcome the opportunity – but we also caution our clients that we’ll need to leave the party before the cops show up.
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This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Koa Wealth Management, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. More information about Koa Wealth Management, LLC can be found in our Form ADV Part 2, which is available upon request or by visiting our website at www.koawealth.com/disclosure. Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.
