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Global Portfolio Strategy | October 2025

The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.

Key changes from STAAC:

  • Aligned 2025 S&P 500 EPS and fair value target ranges with our bull case.

Investment Takeaways
The S&P 500 delivered its fifth straight monthly advance in September, bucking historical trends and capping another strong quarterly advance. Major averages continued to set all-time highs, while the Russell 2000 small cap index logged its first record since November 2021. While signs of a cooling labor market were reinforced last month, market sentiment was lifted by broadly better-than-expected economic data, consumer resilience, and overall policy clarity. Nonetheless, the biggest tailwind was the anticipation of the Federal Reserve (Fed) resuming its rate-cutting cycle, with central bankers ultimately fulfilling expectations of a 0.25% rate cut at the September meeting. In corporate news, Google-parent Alphabet (GOOG/L) was among Magnificent Seven standouts after its antitrust case was resolved without forcing the firm to divest its Chrome browser.

Core bonds extended year-to-date gains in September, measured by a 1.1% gain in the Bloomberg U.S. Aggregate Index. U.S. Treasuries gained ground with longer-dated securities leading the move higher with the 30-year yield shedding 0.2% over the course of September, while the two-year yield ended little changed. Profit-taking from one of the leading macro trades of 2025 — the yield curve steepener — drove curve flattening last month as bond
investors prepared for the resumption of Fed policy easing. Meanwhile, several strong Treasury auctions early in the month helped alleviate demand concerns.

Looking forward, investors may be well served by bracing for occasional bouts of volatility amid a slowing economy and as tariff effects continue to seep through. Given elevated valuations and positioning again growing stretched, a pullback after the 35% rally off April lows would not be a surprise. But given the powerful AI trend, big tech’s significant earnings power, potential forthcoming Fed rate cuts, and the fiscal stimulus boost when 2026 begins, we believe pullbacks are likely to be shallow and bought.

LPL Research advises against increasing portfolio risk beyond benchmark targets currently with stock valuations reflecting a lot of positive news.

The fixed income market remains volatile, although downside pressure on yields could emerge as the Fed continues its rate cutting cycle.

The STAAC’s recommended tactical asset allocation includes:

  • A neutral stance toward U.S. equities as elevated valuations, increasing tariff costs, and a cooling economy (that likely skirts recession) offset the opportunity for meaningful upside, in our view, despite strong earnings-driven gains for technology stocks.
  • The Committee favors growth over value for exposure to the AI theme and compelling earnings growth as the economy slows.
  • The Committee favors large caps over small caps, partly due to superior balance sheet quality and relatively better position to manage tariffs.
  • The Committee recommends well diversified regional exposures, with benchmark-level allocations to the U.S., developed international, and emerging markets. Non-U.S. equities offer upside from a potentially weaker U.S. dollar.
  • Within fixed income, the STAAC holds a neutral weight in core bonds, with a slight preference for mortgage-backed securities (MBS) over investment-grade corporates. The Committee believes the risk-reward for core bond sectors (U.S. Treasury, agency MBS, investment-grade corporates) is more attractive than plus sectors.

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IMPORTANT DISCLOSURES
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. Precious metal investing involves greater fluctuation and potential for losses.
Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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