The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: Fed Decision Week and Tech Earnings in Focus

November 3, 2025 

This week’s market conversation centered on the Federal Reserve’s latest policy meeting, a historic government shutdown, and how investors are beginning to rethink their enthusiasm for artificial intelligence (AI) stocks.  

Federal Reserve: Staying Cautious Amid Mixed Signals 
As expected, the Fed cut interest rates last week. However, Chair Jerome Powell struck a cautious tone in his press conference, signaling that a December rate cut is “not a foregone conclusion.” While the job market continues to soften, inflation remains stubborn at around 3%, still above the Fed’s long-term target. The message: the central bank is walking a fine line between supporting the economy and keeping price pressures in check. 

 Washington Watch: Tariff Case and Government Shutdown 
This week, the Supreme Court will begin hearing arguments on former President Trump’s use of emergency powers to impose tariffs. A ruling against the administration could force the government to repay billions collected from importers—a major development given that tariff revenue currently adds about $35 billion per month to federal coffers. 
Meanwhile, the ongoing government shutdown is poised to become the longest in U.S. history, surpassing the 35-day record set in 2018–2019 unless Congress reaches a deal soon. 

 AI and Earnings: A Reality Check for the Magnificent Seven 
The latest round of corporate earnings offered fresh perspective on the much-hyped “Magnificent Seven”—the handful of mega-cap tech firms that have dominated market performance in recent years. 
Meta (Facebook) reported higher-than-expected capital spending on AI infrastructure, prompting investors to question how quickly those investments will translate into profits. The stock fell sharply in response. 
Amazon, by contrast, also announced larger AI-related spending but saw its stock jump after investors connected that investment directly to growth in its profitable cloud business. 

The difference underscores a broader shift: investors are beginning to look for tangible returns from AI, not just ambitious spending plans. According to Goldman Sachs, total planned investment among major “hyperscalers” could exceed $500 billion by 2026—a figure that shows both the promise and the risk in the AI buildout. 

 Diversification: Beyond the Magnificent Seven 
With valuations among AI-linked giants soaring, diversification remains increasingly important. Nvidia recently surpassed a $5 trillion market cap, while the combined value of the Magnificent Seven has grown to roughly $23 trillion—larger than China’s entire economy. 
Despite their dominance, only three of those seven companies have outperformed the S&P 500 this year. That means plenty of opportunity lies elsewhere: high-quality companies across other sectors continue to contribute meaningfully to the market’s 17.5% total return year-to-date. 

Diversification allows investors to participate in the AI story while balancing risk. Many strong companies outside the spotlight continue to show solid fundamentals and deserve a place in well-rounded portfolios. 

 Bottom Line 
The Fed remains cautious, Washington remains gridlocked, and Wall Street is starting to demand substance from its AI favorites. In an environment like this, staying diversified—not overextended in any one trend—continues to be the most prudent path forward. 

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Video Summary: 

Well, this is one of those weeks where we have so much that we could talk about, but just a few minutes here together. So I'm going to hit on a couple of topics just real quick. Last week, we saw the Federal Reserve meet. They met on Tuesday and Wednesday. They cut rates as expected. I think the biggest headline that came out of that meeting was in the press conference that followed Jay Powell.

Talked about how the December rate cut is no guarantee. They're really focusing on the fact that the jobs market is weakening, but inflation is still a problem. We talked recently about how inflation, no matter how you track it, there measured in a number of ways to measure inflation. Still about 3%. And so that's higher than the Fed wants it.

I think that was one of the big things that we were keeping an eye on last week. This week, the Supreme Court is starting to hear arguments tied to President Trump's use of tariffs, and specifically the emergency powers known as IEPA. So. They'll be hearing arguments. Probably won't render a decision until the first quarter, but this is really big because there is the potential for them to rule against President Trump and actually force the administration to pay back some of those tariffs that they've been receiving.

To those who have actually paid. So, you know, you need to remember the fact that the US government right now is collecting about $35 billion per month in tariff revenue. And this is actually helping to pay for things like the one big, beautiful bill, or at least helps soften that blow as we think about the impact on our ongoing deficit.

So that's just another thing we're keeping an eye on. Obviously, the government shutdown continues this week. Unless we see it magically come to an end, which I don't know if many are expecting, we are looking at the possibility of the government shutdown actually becoming the longest in history. So, actually surpassing that 34 35 day shutdown that occurred in 2018 and 2019.

So we'll keep an eye on that. What I want to really talk about though, is the stock market, and we've talked about how the last few years have been driven by a handful of stocks tied to artificial intelligence. We talk about this term, the Magnificent Seven, which refers to a lot of these companies that are tech-based or tech adjacent that are so closely tied to artificial.

Last week was a big week for corporate earnings because a number of these companies reported, and specifically, we saw Meta, or Facebook, report earnings last week. Their stock took a double-digit hit when they talked about how capital expenditures or planned spending on artificial intelligence. Build-out is going to be larger than previously expected.

Now, at the same time, we saw Amazon report the same thing. They said they're going to continue spending on artificial intelligence. They continue to have confidence, think that you need to put the money up to actually reap the full benefits of this technology. Their stock actually had a double-digit gain.

And so what's the difference here? The difference is that Amazon actually is seeing a lot of benefit to its cloud business and the ongoing build-out. All of this capital spending is going to help support the growth of a business that's already doing quite well for Meta for Facebook. It's still something that.

You know, investors look at this, and it's a lot of money that's being committed to something that they just don't know how it's going to benefit the company just yet. And so there's a little bit more of a financial risk there. These are still quality companies, but I think that the bigger story here is that it tells us that investors are starting to pay attention, and eventually, they will start to look for some.

Sort of a payoff or benefit from all of this money that is being thrown at this AI build-out in terms of how much is being spent. We're looking at recent research from Goldman Sachs that shows that in 2026, the planned investment among the hyperscalers is actually looking to surpass $500 billion. So there's a lot riding on this thing.

Something to keep an eye on. What it means for us as investors and for client portfolios is, look, you can, you can express confidence in the artificial intelligence theme. You can play this theme, but you can do so in a prudent way by being diversified. And that's what we're doing here. There are a lot of quality companies here that are often associated with artificial intelligence, and we own many of them, but I think it's so important, as we acknowledge how big some of these companies have gotten, to just make sure not to get over our skis.

Last week, Nvidia surpassed 5 trillion in market cap. We're looking at the Magnificent Seven as a whole. That is now worth about $23 trillion, so actually larger than the size of China's economy. And so we need to focus. And, remind ourselves that these companies have gotten very, very big on hopes of artificial intelligence, and the benefits that will accrue to them.

But eventually, we will actually look for that look to realize some of those benefits. And these companies are going to be on the hook. They need to justify those valuations. So it's worth investing beyond this magnificent seven, beyond these artificial intelligence players right now. Because there are a lot of good companies out there.

If we look at the S&P 500 performance, the broad index performance through October 31st, that's through last Friday. We see the index is up on a total return basis. That's including dividends. About 17.5%, just three companies in the Magnificent Seven have actually outperformed the index in the first 10 months of the year.

And that tells you that if the index can still return almost 18% there, and just three of these largest companies are actually contributing. There are a lot of good companies that just don't get the same level of attention. Just because they're not, they don't get that attention, doesn't mean they don't deserve a place in your portfolio.

So I think it's so important to keep in mind that we need to be diversified here, and that certainly allows us to play the AI theme, but it also helps to balance the risk on the downside if suddenly, um, appetite wanes for artificial intelligence stocks, or they somehow stumble. One more thing I would add, there is we're thinking about performance here on a year-to-date basis.

I will just acknowledge the fact that just two companies in the Magnificent Seven are ranked in the top 100 of S&P 500 companies when it comes to total return performance. Again, just another reminder, there are a lot of good companies out there, and that's why we continue to be diversified in our portfolios.

We have exposure to the 11 major sectors of the economy, and I think that's the best way to play it right now. So I will leave it there for this week. I'll look forward to catching up next time. But if you have any remaining questions, please feel free to reach out to your financial advisor.