Q325 Newsletter

Our Upstream Asset Management team is excited to share an overview of the 3rd quarter.  In a world filled exclusively with "breaking news," it can be difficult to maintain the long-term perspective required to be a successful investor. In today's recap, we'll offer a few thoughts about the state of consumers and the companies we invest in, share some interesting notes on investing thus far in 2025, and highlight the OBBA tax changes that took place last quarter.

First, the Returns…

  1. 2025 RETURNS HAVE BEEN STRONG (AGAIN): Here are the 2025 market returns through the third quarter [total return as of September 30, 2025]:

    ‍

                                                                             S&P 500: [ +14.83% ] (Source)

                                                                             Dow Jones Industrials: [ +10.47% ] (Source)

                                                                             U.S. Small Cap: [ +8.81% ] (Source)

                                                                             International – Developed: [ +26.77% ] (Source)

                                                                             International – Emerging Markets: [ +22.51% ] (Source)

                                                                             U.S. Aggregate Bond Index: [ +5.96%  ] (Source)

                                                                             U.S. Government Bond Index: [ +5.06%  ] (Source)

The State of the Consumer:

  1. CONSUMER NET WORTH HITS AN ALL-TIME HIGH: While bad economic news dominates the airwaves, what has happened to consumer balance sheets is nothing short of remarkable. During the second quarter (the most recent quarter for which data is available), consumer (and nonprofit) net worth increased by more than $7 trillion to reach an all-time high of $176 trillion. On the other side of the ledger, liabilities rose by just $183 billion. The net effect is that household leverage—the ratio of liabilities to assets—has declined to an almost 60-year low! Suffice it to say that households, as a group, are in excellent financial shape.  (Source: First Trust)

  1. THERE’S FINALLY SOME RELIEF FOR MORTGAGE RATES: Leading up to the widely expected Federal Reserve’s recent rate cut, potential homebuyers finally received some welcome relief for mortgage rates as they declined to an 11-month low. While mortgage rates tend to follow the 10-year Treasury more closely than short-term rates, it’s nonetheless encouraging that the Fed expects additional rate cuts to come. Assuming this happens, it should hopefully fuel further reductions in mortgage rates, making homes a little more affordable. (Source: AP News)

  1. THE LABOR MARKET IS COOLING: One notable negative for consumers is that the job market is cooling. While there has been a slight uptick in unemployment, the major change has been a significant decrease in job openings compared to recent years. An unfortunate byproduct of a tightening job market is that—according to the economic principle of supply and demand—we can probably expect wage growth to cool as well, since more people are competing for fewer jobs. (Source: Apollo)

The State of the Companies:

  1. EARNINGS AND PROFIT MARGINS ARE HISTORICALLY HIGH, AND RISING: Goldman Sachs’ David Kostin recently noted that an odd benefit of a cooling labor market is that it tends to be a tailwind for corporate profits, all else equal. We’re starting to see this effect even after earnings and profit margins have been expanding for quite some time now. That’s not to say that we should be excited about wages and job growth stalling, but as long-term investors, these events do offer efficiency gains for the companies that we own, which can benefit us as shareholders. Please note, however, that the key words in all of this are “all else equal.” (Source: Sam Ro)

  1. COMPANIES ARE BUYING THEIR STOCK BACK AT A RECORD PACE: Despite increasing stock prices, companies are on pace to repurchase more than $1.1 trillion in stock, which would be an all-time high. While the high prices at which these shares are being purchased aren’t necessarily a positive in this instance, buybacks are generally good for long-term shareholders like us because fewer shares means we own a slightly larger portion of the company, and by extension, the aforementioned earnings as well. (Source: USA Today)

The State of Investing:

  1. THE FED (FINALLY) CUT RATES AGAIN: Toward the end of 2024, many investors expected that we’d experience a significant decline in interest rates throughout 2025, possibly down to as low as 3%. But that’s not how it has played out so far. Instead, it took until the Fed’s September meeting to cut rates again (by just 0.25%), making it the first rate cut since December 2024. While this year’s experience should rightly encourage us to view all forecasts with skepticism, it’s expected that we’ll see two additional quarter-point cuts before year-end. (Sources: 2025 Rate Expectations: Forbes; 2025 Recent News:  Brew Markets)

  1. VALUATIONS ARE HISTORICALLY HIGH: By most any measure, stocks are historically expensive. Full stop. But stocks were also historically expensive ten years ago, and yet, the market has performed incredibly well since that time. I think it’s fair to say that this has been surprising to most investors, but I believe it shows that the great companies of the world may be better at generating profit from their organizations than anyone could have possibly imagined. With additional efficiency gains from A.I. and the continuing technological revolution, we may be surprised yet again when we look back ten years from now. Only time will tell. (Source: Sam Ro)

  1. STAYING THE COURSE WAS A WISE DECISION ONCE AGAIN: Given the recent market performance, I’m guessing few investors even remember the near-bear market that we experienced earlier this year. For the record, the market declined by 18% from January to April, but since then, it has performed significantly better than simply rebounding from the downturn, as it’s now up more than 14% for the year. Consider this yet another reminder of why staying the course is such a valuable principle in successful investing. (Source: Callie Cox)

  1. THERE’S PLENTY OF OTHER GOOD NEWS TOO: Despite all the negative headlines, Apollo’s Torsten Slok recently noted that trade and economic policy uncertainty is improving, consumer expectations regarding business conditions are also improving, consumers appear to be less worried about losing their jobs, companies are investing more in their future, banks are lending more while bankruptcies are trending lower, and business formations remain near multi-decade highs. There are concerns about inflation and other uncertainties, but I think it’s fair to say that the economy remains in good shape. (Source: Apollo)

*****************************************************************************************

Q3 In Review - What’s in the One Big Beautiful Bill Act (OBBBA)?

In Q3 2025, the “One Big Beautiful Bill[1]” was signed into law.  The OBBBA emphasizes tax policy reforms designed to foster innovation and expand private sector activity, with the overarching goal of stimulating broad-based economic progress. Highlighted concerns include cuts to Medicaid, food assistance programs, government spending increases, and potential repercussions for the national debt with permanent tax cuts.  To secure passage, bipartisan negotiations resulted in several critical compromises: enhanced child tax credits, expanded charitable deductions, and a permanent expansion of the low-income housing tax credits. Our analysis will focus exclusively on the major changes to tax regulations introduced by the legislation.

FOR INDIVIDUALS:

2017 Tax Cuts Permanently Extended

During President Trump’s first term, he signed the Tax Cuts and Jobs Act (TCJA) into law, which lowered taxes on individuals and corporations across most income tax brackets. This new bill makes those lower tax rates permanent[1a], providing some certainty and stability for households and corporations when it comes to future tax planning. The increased standard deduction amounts[1b] have also been made permanent, increasing to $15,750 for single filers and to $31,500 for married filing jointly (MFJ) for the 2025 tax year. These amounts will be adjusted for inflation in future years.

New $6,000 bonus deduction

Those age 65 and older will receive this $6,000 of additional deduction [1c] which will stack this on top of their standard deduction OR itemized deductions for the next four years.

Child Tax Credit Increased & New Savings Accounts for Newborns

The child tax credit[1e] has now been permanently increased to $2,200 in 2025 and will be indexed to inflation for future years. This credit remains partially refundable, and the refundable portion is indexed to inflation as well. New Government-funded accounts for newborns offer a $1,000 government funded contribution and allow $5,000/year in parental after-tax contributions.

State and Local Tax (SALT) Deduction Increased

One form of welcome tax relief, especially in higher tax states such as Minnesota, is that this new law dramatically increases the state and local income tax deduction[1c] from $10,000 to $40,000. This deduction amount will increase annually by 1% through 2029, at which point, it will revert to $10,000 in 2030, unless otherwise extended. The full SALT deduction is available for those with modified adjusted gross incomes (MAGI) up to $500,000 in 2025 and begins to slowly phase out above that amount.

Personal Car Loan Interest is Now (Sometimes) Deductible – For Vehicles Assembled in America

For the years 2025 through 2028, car loan interest—applicable exclusively to new vehicles with final assembly completed in the United States [4], plus other restrictions—is now deductible[1h] up to $10,000 per year, and you do not need to itemize to qualify for this deduction. This deduction phases out for those with MAGI above $100,000 for single filers and $200,000 for MFJ. This interest deduction appears to apply equally across all vehicle types, including electric vehicles.

Overtime Wages & Tips

Through 2028, eligible workers will not have to pay federal income tax on overtime wages or tip income — a move aimed at boosting take-home pay for lower- and middle-income earners. However, this benefit does not apply to individuals above certain income thresholds, ensuring the relief is targeted at those who need it most.

Clean Energy Headwinds: The Electric Vehicle (EV) Tax Credit Is Being Eliminated

One tax credit being eliminated as part of this bill is the clean vehicle credit[1i].  Under previous legislation, the potential tax credit was for up to $7,500 for new EVs and $4,000 for used EVs. Those credits will be eliminated for purchases made after September 30, 2025.  That being the case, if you’ve been considering the purchase of an EV, the window to capture this credit is closing. Other clean energy tax-credits for wind and solar projects are set to gradually end while the preservation of tax credits for nuclear, geothermal, hydropower, and energy storage extend through 2033.  The OBBBA ramps up support for traditional energy by requiring new federal oil and gas lease sales and reinstating key tax deductions for drilling operations. It also postpones methane emissions fees until 2035, easing environmental regulations for fossil fuel producers.

Social Security

The bill does not eliminate taxes on Social Security.  Removing taxes on social security was a hot topic of discussion during the campaign trail but ultimately not included in the bill.

Federal Estate and Lifetime Gift Tax Exemption Amounts Increased

Under the 2017 TCJA legislation, the estate and lifetime gift tax exemption amount[1f] increased to approximately $14 million (M) per person ($28M per couple) in 2025 and was scheduled to reset to about $7M per person in 2026. Under this new legislation, the estate tax exemption amount is now permanently increased to $15M per person ($30M per couple) starting in 2026 and will continue to be adjusted for inflation moving forward.

SMALL BUSINESS OWNERS:

QBI (Qualified Business Income) Deduction – Increased from 20% to 23%

The bill delivers long term tax-relief to small business owners who operate pass-through entities like sole proprietorships, partnerships, and s corps. The Qualified Business Income deduction[1g], originally introduced in the TCJA, has now been made permanent. This deduction is subject to income thresholds and other restrictions. The premise is to allow entrepreneurs more financial breathing room to reinvest in growth and hire new employees.

Qualified Small Business Stock (QSBS):

The act supercharged the QSBS incentive making it more attractive for founders to support startups and small businesses.  It shortened holding periods to allow partial or full capital gains exclusion after three, four, or five years, and raised the exclusion cap to $15 million per company, indexed to inflation. Startups with up to $75 million in assets can now qualify, broadening eligibility for late-stage ventures.

Expense & Building Incentives:

Businesses can now immediately write off 100% of costs for new purchases like machinery, equipment, and R&D expenses.  The entire cost of new factories constructed domestically are fully deductible to encourage manufacturers to expand local production.

REAL ESTATE INVESTORS:

Bonus Depreciation: The bill reinstates and makes permanent the ability for real estate investors to deduct 100% of the cost of qualifying assets (<20 year useful life) in the first year placed in service.  Eligible assets are often identified via cost segregation studies and include flooring, lighting, HVAC, electrical systems, security systems, and land improvements. Section 179 deduction cap was increased to $2.5 million and allows an accelerated cost recovery rather than depreciating these items over time.

Qualified Production Property (QPP): To encourage industrial development 100% bonus depreciation is applied to certain industrial-use spaces like production floors and equipment zones for new construction.

We've attempted to cover only the items that will impact most clients, but if you’re interested in seeing what else is in the bill, The Tax Advisor, published by the AICPA, offers a more comprehensive look at most of the changes. We’d also encourage a conversation with your tax professional to determine how these specific changes impact your specific tax situation.

SOURCES:

[1] Congress.gov
[1a] Extension of TCJA (page 216)
[1b] Standard Deduction Amounts (page 217)
[1c] SALT Deduction (page 244)
[1d] Senior Deduction (page 218)
[1e] Child Tax Credit (page 221)
[1f] Estate and Gift Tax Exemption (page 227)
[1g] Qualified Business Income & Qualified Small business Stock  (page 224 & 435)
[1h] Car Loan Interest (page 263)
[1i] Electric Vehicle Tax Credit (page 462)

[2] Throughout this note, “permanent” simply means that these changes do not expire. They are, however, subject to change via future legislation.
[3] Additional Estate Tax Exemption Information by Year from Frost, Brown, Todd
[4] Here is a list of vehicles supposedly assembled in the United States, as reported by MotorTrend.
[5] For additional details, see this Kiplinger article here. [6] https://taxfoundation.org/blog/one-big-beautiful-bill-pros-cons/

We’re committed to keeping you informed on key market, economic, and regulatory trends that matter to investors. For any questions, our team is here to help. Stay focused—invest in the long game.

Upstream Asset Management

Leadership: Tyler Westphal, CFP® / Chris Connelly, CFP® / Lisa Willems

Email Upstream@raymondjames.com

Office 651.641.0620


275 3rd St. South

Suite 303

Stillwater, MN 55082

A green and white logoAI-generated content may be incorrect.

Disclosures:

Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Upstream Asset Management is not a registered broker/dealer and is independent of Raymond James Financial Services. Raymond James Financial Services Inc., Member FINRA/SIPC. Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. The indexes mentioned are unmanaged and cannot be invested into directly. No investment strategy can guarantee your objectives will be met. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment decision. Material is provided by Money Visuals LLC, an independent 3rd party, not affiliated with Raymond James.

‍