Risk assets continued their fall rise as the S&P 500, powered by the Artificial Intelligence-related companies, gained 2.25% for October. The Dow Jones Industrial Average and the technology-heavy NASDAQ Composite Index appreciated 2.7% and 4.6%, respectively. The breadth of the gains from stocks was narrow throughout the month. The equal-weighted S&P 500, an index that assigns equal weighting to all 500 companies within the S&P 500, was down for the month, losing 0.91%. The Federal Reserve announced another rate cut this month, amid a growing government shutdown.
Investor optimism has been bolstered by strong corporate earnings from the “Magnificent Seven.” Many believe that the Federal Reserve will eventually lower interest rates, which would support asset prices and corporate profitability. Despite external threats, such as global geopolitical instability and concerns about trade disruptions, U.S. companies have generally reported solid results. This has reinforced confidence in the resilience of Corporate America, particularly in industries not affected by tariffs. However, high valuations across equity markets pose a potential risk, suggesting that prices could be vulnerable if economic conditions or earnings outlooks deteriorate. In this environment, prominent investors like Michael Burry, known for his foresight during the 2008 financial crisis, have issued warnings. Burry specifically cautioned retail investors about the excessive bullishness and exuberance in the markets, a reflection of his reputation for identifying bubbles and risks before major market corrections.
Over the near term, we believe consumer spending will remain resilient despite concerns about economic divergence between affluent and lower-income households. When we review models that incorporate household income, financial assets, and borrowing costs, we project consumption growth will stabilize around 2% through 2027, with third-quarter real consumer spending estimated at a robust 3.2% annualized pace. The concentration of consumption remains pronounced, with the top 40% of income earners responsible for 60% of aggregate spending, creating what some describe as a K-shaped economic trajectory. We believe this K-shaped economy will continue to widen in the coming years. Financial asset gains, such as those in the stock market, have provided meaningful support by enhancing household balance sheets and perceived lifetime income, contributing roughly 0.3 percentage points to third-quarter spending.
Looking ahead, the sustainability of consumer spending will increasingly depend on labor market conditions and real (inflation-adjusted) income growth rather than on wealth effects from equity appreciation. Credit dynamics indicate that households are engaging in voluntary deleveraging, particularly in revolving credit, such as credit cards, with aggregate debt-to-income ratios declining since 2022. This suggests consumers are maintaining more conservative balance sheets, which limits the potential for credit-driven expenditure growth. While the wealth effect from stock market gains varies widely across studies—with estimates ranging from five to fifteen cents of additional spending per dollar of equity wealth—the aggregate impact is likely toward the lower end, given that most holdings are concentrated among high-income households with lower marginal propensities to consume. As stock market momentum fades into the fourth quarter and beyond, household income growth and interest rate developments will become the primary determinants of consumption patterns.
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Eagle Financial Services (Ticker: EFSI)— Eagle Financial Services reported net income of $5.6 million, or $1.04 per diluted share, for Q3 2025. The company declared a quarterly dividend of $0.31 per share, payable November 14, 2025, to shareholders of record on November 3, 2025. Net interest income surged 9.6% quarter-over-quarter to $17.2 million, while the net interest margin expanded to 3.58% from 3.42% in Q2 2025 and 3.03% in Q3 2024, driven by balance sheet repositioning and management of higher-cost deposits. Asset quality remains a focus as nonperforming assets decreased to $14.3 million (0.74% of total assets) from $17.5 million (0.86%) in the prior quarter. However, the company recorded $2.3 million in net charge-offs primarily related to one significant commercial real estate relationship. We are pleased with the bank’s return on equity exceeding 12% and believe this is a repeatable level for the bank in the short term.
Blue Ridge Bankshares (Ticker: BRBS)-Blue Ridge Bankshares reported net income of $5.6 million, or $0.06 per diluted share, for Q3 2025. Net interest margin expanded to 3.60% from 3.15% in the prior quarter, with the one-time loan fee income contributing 49 basis points to this improvement. The company launched a $15 million share repurchase program in August 2025, repurchasing 659,949 shares at a weighted-average price of $4.16 per share, for a total of $2.8 million by the end of the quarter. Asset quality deteriorated modestly, with nonperforming loans increasing to $28.6 million (1.14% of total assets) from $24.0 million (0.94%) in the prior quarter. Finally, the bank announced a special cash dividend of 25 cents per share, so the bank leadership team is not concerned about the loan book. We still expect the bank to announce a sale within the next 12 months.
Xai Octagon Floating Rate Income Fund Preferred Stock (Ticker: XFLT-A)-Earlier this month, our term preferred stock was called early by the fund’s management team. The redemption date of the preferred stock was October 31, 2025. The company is retiring this preferred stock and replacing it with another preferred stock, which was bought at a discount last month through private channels. The investment generated an approximate 6.9% annualized rate of return while we held the preferred stock for the last couple of years.
FFB Bancorp (Ticker: FFBB)— FFB Bancorp reported net income of $6.24 million, or $2.06 per diluted share, for Q3 2025, a 3% increase from $6.04 million in Q2 2025. Book value per share increased 6% quarter-over-quarter to $60.04, representing a 17% increase from the same quarter of the prior year. The net interest margin improved six basis points sequentially to 5.15%. The company completed its $15.0 million share repurchase program during the quarter, repurchasing 194,049 shares at an average price of $77.21, representing 7.73% of total shareholders’ equity. In a conversation earlier this month with the bank’s CEO, leadership is pleased with the pace of progress on the bank’s consent order. We expect the bank to uplist shortly after the consent order is lifted. An uplisting of the bank would be a material tailwind for the bank’s share price.
Thank you for your continued trust. As we go through the holiday season, please be assured that we will continue to monitor opportunities and allocate your capital prudently.
Best regards,
Stash J. Graham