The U.S. economy decelerated in 2025, but a recession is considered unlikely by some analysts due to several mitigating factors. While growth slowed and job creation weakened, a combination of fiscal stimulus, modest unemployment changes, resilient global manufacturing, and strong tech investments offers reasons for a more optimistic, albeit modest, growth forecast for 2026.

The modest rise in unemployment, despite slow job creation, suggests demand is not deteriorating at an alarming rate. A low-hiring, low-firing market and a slower-growing labor force can blunt the effect of weakening demand on the unemployment rate. Some economists see the labor market as “lethargic but not getting rapidly sicker”.

The U.S. budget bill is expected to provide fiscal stimulus, especially in 2026, with a tax bill potentially acting as a “massive stimulus check”. This could boost consumer confidence and spending and offer relief from inflation caused by tariffs.

Manufacturing activity is reportedly accelerating globally, partly due to increased investments in AI, automation, and smart factories. This can help increase efficiency and productivity, contributing to overall economic growth.

The strong business investment in AI-related infrastructure (computing capacity, data centers) is seen by some as a major economic tailwind. AI and innovation have contributed to economic resilience even amidst slowing consumer activity. 

The S&P 500 gained 8.1% in the third quarter of 2025, bringing its year-to-date return to 14.8%. This performance was driven by robust corporate earnings, particularly in the technology and communication services sectors. In the third quarter, international equity markets had positive performance results, but U.S. dollar-based returns were negatively affected by weakening foreign currencies. The tech-heavy Nasdaq Composite outperformed other major indexes, returning 11.4% for the quarter. This was largely due to continued optimism and significant investment in artificial intelligence (AI) and cloud infrastructure.

Large-cap growth stocks significantly outpaced value stocks, with the Russell 1000 Growth gaining 10.5% compared to the Russell 1000 Value’s 5.3% return.

Small-cap stocks, tracked by Russell 2000, saw a strong quarter with a 12.4% gain. This rally was likely fueled by hopes that lower interest rates would benefit smaller companies.

Overall, the third quarter of 2025 was defined by resilient earnings, continued AI-driven investment, and a rebound in small-cap stocks, helping major U.S. indexes reach new record highs. 

(MSR) Mortgage Servicing Rights Insights

The Federal Reserve’s decision in September to lower its benchmark interest rate by 0.25 percentage points marked a significant shift in monetary policy. This was the first rate cut since December 2024 and reflected growing signs of a softening labor market and slowing economic growth. The move came just ahead of a potential government shutdown, underscoring the Fed’s effort to balance economic support with broader fiscal uncertainty.

As mortgage interest rates began to decline in early September, the Bulk MSR market experienced a sharp uptick in activity, with more than $50 billion in offerings during the month. This momentum is expected to continue, with total offerings projected to exceed $100 billion in October. The Fed’s policy shift toward lower benchmark rates has reinforced expectations of continued rate declines, prompting MSR holders to bring assets to market while valuations remain near historic highs.

Looking ahead, market participants will closely monitor economic data and Fed communications for guidance on the pace of future rate adjustments. Continued monetary easing could sustain elevated MSR trading volumes in the near term, though an extended decline in mortgage rates may eventually begin to weigh on servicing valuations.