Newsletter and Quarterly Update September 2025

Greetings from the Northwest!

We’re a bit slower than usual in getting the report out this quarter, and I must admit that it’s my fault, having chosen the end of September to traipse around Europe for a couple of weeks for my wife’s 60th. We could not have timed it better for the weather, and somehow managed to avoid every one of several nationwide transportation shutdowns that were rolling through France and Italy at the time. I must say that I enjoyed Rome and its endless array of heroic and oversized architecture about as much as anything, and the food there is wonderful. 

Whenever I’m abroad I enjoy comparing the ways that different cultures prioritize the use of their time and money. Art, architecture, good food and drink I think have always been a priority in much of Europe, and you can add to that a focus on modern infrastructure. In particular, the entry ports and related facilities were noticeably more modern than I’m accustomed to in the US. Security was a priority as well, with frequent passport or security checkpoints in popular tourist areas. 
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I also watch consumer behavior and spending, just to have another data point in my mind about where things are economically. I came to a mixed conclusion: While the populace seemed to be enjoying life, eating out, drinking plenty of wine and beer, and driving new Chinese EVs, the threat of government austerity measures was a main cause for the nationwide strikes. The reality of higher defense costs, higher interest rates, and an unsustainable trajectory for social services must be dealt with in one way or another, so I cannot see how that plays out without some upheaval. I think that the EU’s budget issues are more dire than our own. 
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Here at home, it’s a beautiful start to fall; a nice distraction from the news cycle that we’re in right now, which seems unusually full of dire situations and a bit skinny on good news. Maybe peace in Gaza? One can hope. As we’ve said consistently, world events and the news will do what they do, and yet people everywhere are relentlessly striving to better their economic lives, which gives us hope that there is always a path forward to growing and protecting your money. We rely upon a data-centric approach that will tend to keep you out of trouble and your wealth moving forward. We try to avoid the pull of either fear or greed, which will be clear in Patrick’s following dissection of current conditions. 

Patrick's Part

Equity markets shrugged off persistent inflation and a softening labor market to post solid gains for the quarter. Performance varied widely across segments: Large-cap stocks, as measured by the S&P 500, returned 8.1%, while the equal-weight version of the index gained just 4.8%.
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Market leadership has once again narrowed, with the technology-heavy S&P 500 outpacing the broader market as investors continue to reward large-cap tech firms making aggressive investments in artificial intelligence (more on this below).

On the flip side, after several years of underperformance, international stocks have benefited in 2025 from a combination of more attractive valuations and a declining U.S. dollar – a welcome tailwind for global markets. It’s too early to know whether this trend will persist, but with continued dollar weakness, we will remain active in identifying and pursuing opportunities outside the United States.

The AI Boom ​

The growth in artificial intelligence development, spending, and enthusiasm over the past few years has been remarkable. Whether a company is manufacturing chips or developing software to power this new economic growth engine, investor excitement has been unwavering. The pace of innovation and capital investment in AI has been unlike anything seen in decades, touching nearly every industry and business model. As with any new era, there are both similarities and differences compared with past market cycles. This has led some financial professionals to question whether we’ve entered the second-greatest bubble in U.S. equities over the past 25 years, as many of these innovators now trade at revenue multiples reminiscent of the late-1990s tech boom. Time will tell whether these companies can grow into their lofty valuations and successfully monetize the massive investments being made.

The most common pushback to comparing today’s AI boom with the late-1990s tech bubble is: “Yes, valuations are high, but these companies actually have real earnings and cash flows.”

Like all manias, there’s a narrative that feels convincing. It’s true that many unprofitable dotcoms fueled the bubble. But profitable firms existed then, too – and they weren’t immune.
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Consider Cisco. In 2000, it delivered $4.6 billion in operating income, up more than 30% year-over-year. Yet the stock still fell nearly 90% over the next 18 months. More striking, its share price remains lower today than it was 25 years ago.

Nothing against Cisco – it’s a highly profitable company that has consistently generated solid operating performance and returns on capital. But that didn’t shield its stock from collapsing when valuations stretched too far.

And Cisco wasn’t alone. Look back at the late-90s leaders – Microsoft, Oracle, Amazon, and others – and you’ll see the same story: strong businesses, but stock prices that rose too high based on their fundamentals.

The follow-up question I often get from clients is: What could cause the market to become more cautious about the AI boom?
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In my view, the answer lies in the aggressive capital expenditure currently sweeping across the sector. The chart below highlights the annual CAPEX spending of five of the largest investors in artificial intelligence. The sheer scale of these investments reflects both the confidence in AI’s long-term potential and the growing risk that expectations – and spending – may be getting ahead of near-term returns.

Fixed Income and Economy

On September 17th, the Federal Reserve lowered the Fed Funds rate by 0.25%, marking its first rate cut in nearly a year. The Fed cited a growing imbalance between a slowing labor market and persistently elevated inflation. The next two charts highlight this dilemma – payroll growth continues to decelerate year over year, even as inflation gauges higher.

Given this divergence in economic data, a series of aggressive rate cuts appears unlikely unless the U.S. enters a recession. Still, the bond market has welcomed the prospect of easing monetary policy, with the Treasury yield curve shifting lower across all maturities since the start of the year. Most notably, the 10-year yield has declined by nearly 0.40%, suggesting the bond market may be more concerned about slower economic growth than a resurgence in inflation.

We are not in the business of predicting recessions, but knowing where you stand in the cycle is important. Based on many underlying economic trends we track, our economy seems to be in the late innings of the growth cycle that started after the pandemic.

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We are not in the business of predicting recessions, but knowing where you stand in the cycle is important. Based on many underlying economic trends we track, our economy seems to be in the late innings of the growth cycle that started after the pandemic.”

—Patrick Mason

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Final Thoughts

The first nine months of the year have delivered solid investment returns, and our portfolios have kept pace – even with a larger-than-normal allocation to cash – thanks to our tactical positioning in international markets and select sector exposures.
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We continue to view risks as skewed to the downside, given the backdrop of persistently high valuations across much of the U.S. market. That said, our elevated cash position is not a market-timing tool; it’s a byproduct of our disciplined investment process built around a rigorous valuation discipline. When suitable opportunities that meet our criteria are limited, we’re content to remain patient.

While we wait, our cash is actively invested in money markets and Treasury bills to earn competitive yields. When the data shifts and attractive opportunities emerge, we’ll be positioned to deploy capital efficiently – increasing risk exposure without having to sell existing holdings at unfavorable prices. Thank you for your continued trust and support. Please feel free to reach out to me with any questions or comments. —Patrick Mason

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Thanks, Patrick!

As always, we’d love to see you in the office. We’re open to an onsite meeting most weeks and we always have fresh coffee on hand. If I don’t see or speak with you, I hope that you have a wonderful Holiday season!
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Happy Trails,
​Tim Mosier, President
​Cairn Investment Group, Inc.

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When suitable opportunities that meet our criteria are limited, we’re content to remain patient…

When the data shifts and attractive opportunities emerge, we’ll be positioned to deploy capital efficiently – increasing risk exposure without having to sell existing holdings at unfavorable prices.”

—Patrick Mason

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