Q3 2025 Market Update

That was a pretty hot summer. Well Austin wasn't too bad (rarely cracked 100) but I more so mean the markets in general. Q3 for the S&P 500 ended up +7.47% which is a dramatic shift for those that know that historically August and September are some of the worst performance months of the year. I'm glad that at Baskets we made it a point to not trim many positions and focus on Holding for the companies that we believe in.

As for market updates, we saw a big shift in the US with the Federal Reserve finally acknowledging a tighter labor market and cutting rates by 0.25% (25 bps) and announcing (almost certain) 2 more rate cuts with a 9-6 vote by Fed officials.

Pressure from Trump and White House for more cuts and relief on the labor market (and real estate) made this a crazy Fed meeting.

Ever since rate increases started in 2022, many real estate funds and projects flipped belly up as those bridge loans had tiny fixed periods and then jumped to Adjustable. If you're working with other real estate funds (like some of our clients have been telling us) then you most likely have had several Capital Calls over the last few years. The simple reason for those projects and loans exploding (negatively) is due to greed over the interest rate environment in 2020 to 2021. With a dry up in new capital towards real estate and interest rates potentially dropping heavily, we'll be tracking multiple REITs, especially mortgage REITs.

You may be tired of reading these updates from me concerning AI stocks but I really believe that there are companies that will be Market Changing over the next few decades to come. There's also the argument and understanding that some inflated companies will be first to tank if the supposed bubble does actually burst.

That's important to us.

That's why we keep studying and will always focus on identifying companies that have the sound fundamental base for applying to portfolios. I know I talked about Credo ($CRDO) last quarterly letter but it is worth mentioning again as this company has been a homerun of homeruns as they did exactly what they told the world they would do in April. There are 5 major hyperscalers building data centers right now in the US: Amazon, Google, Meta, Microsoft and Oracle. In Credo's Q2 earnings call they were just serving Amazon and that client accounted for >80% of their revenue (normally a huge red flag) but they reported the potential of 2 more hyperscalers.

Well, as of their last earnings call they are serving 4 major hyperscalers and have many more 'smaller' interested parties for their cabling and rack up buildouts for their data centers. Their revenue jumped 31% quarter over quarter and 274% year over year. But the biggest thing that made me backflip down my office hallway was $98.3M of Net Income when that number was negative at the beginning of this year. That means they are making so much more money and cruising through their operations and lowering the total amount spent on expenses.

Not everything is a win though. We were (and still very much are) attracted to Marex Group which has been the disappointment of the year. Most accounts show those positions of $MRX down 10% from initial starting points (late May to early June). In a year of dramatic wins we still take our humble pie and see areas for further analysis. As for understanding this company and loving a P/E of under 11, we still get that although the early year turmoil in markets led to good growth for this company, more stability definitely shies other institutional investors away as they bank on fewer mega investors using Marex for their trading. Yet on their earnings call, they still knocked it out of the park with a double beat and more optimistic future guidance.

Another tough follow this year has been our holding of Salesforce ($CRM) which is down 25.88% YTD. This is a company that has shown massive profitability for the last 42 Quarterly Earnings Calls. It's fallen down the ladder we don't like to talk about because its optimistic forward guidance and misses on revenue and EPS expectations has lots of analysts questioning how much Massive Growth this company has when compared to other software (or worse, AI companies). Between you and me, I believe their usage of Matthew McConaughey in AI commercials has backfired. He's a great actor and clearly is making so much money for being the Creative Advisor but his college football team is overrated and not as good as A&M's.

For the rest of the year:

As we enter another earnings season in the next couple of weeks with the big banks setting the tone for Q4, I expect a slight pullback based off of increased P/E and overall hot results for the last few quarters. Expectations are high for results and earnings, but a slight pullback might be needed as the S&P is already up 12% YTD. A drop will provide a good use and timing for additional capital as we try to capture end of the year gains.

Added tariffs from administration on random goods like kitchen cabinets is keeping everyone on their toes. We're seeing a push from several major national home builders that are adjusting their caped immensely to compensate for created American goods but that's going to have a shift on the overall home building market and this the real estate market in general. That same real estate market is also struggling to breathe as it's completely flipped to a Buyers market with more home inventory in major US cities than we've seen in decades. Now, how that current status will interact with potential lower rates, should start moving more properties but is yet to be seen. There won't be an immediate change but what I think many institutional firms are looking for is something to help release housing inventory tension.

We expect a potential pullback with government shutdown for a couple of weeks in October but a 'rightening of the ship' going into the end of the year. We will be using cash/MM on the sidelines if there is a true pullback and watching diligently.

Thank you for trusting the Baskets Capital team with your future. We are excited and grateful to serve you.

This is informational and not investment advice. Investing involves risk and loss of principal. Past performance does not guarantee future results. We and our clients may hold positions in securities mentioned and may trade without notice. Indices are unmanaged and cannot be invested in directly. Data is believed reliable but not guaranteed. We do not provide tax or legal advice. See our Form ADV for details.