Economic Update 10-06-2025

Economic data included an improvement in the ISM manufacturing report, although it stayed in contraction, while ISM services fell to neutral. Several reports weren’t published because of the Federal government shutdown, including the closely-watched employment situation report.

Equities saw gains last week globally, led by international markets over U.S. Bonds fared positively as well, as assumed plans for Federal Reserve easing and the government shutdown pulled down yields. Commodities were mixed, with strength in metals and weakness in energy.

U.S. stocks fared positively, despite the rising odds of a government shutdown at quarter-end (and reality on Oct. 1), being offset by weaker labor data, which perpetuated the assumption of another Federal Reserve cut late in October. Artificial intelligence sentiment and momentum also remained high. By sector, gains were strongest in health care, followed by utilities and technology. In health care, up 7%, this was led mostly by Pfizer, after an agreement between the firm and the U.S. administration to lower prescription drug prices in the Medicaid program in exchange for tariff relief. Declines were most pronounced in energy and communications, with the latter being due to falling oil prices. Real estate ticked up slightly for the week, with declines in interest rates. Earnings results for Q3 will be rolling out next week, which could take some of the attention away from other macro events.

Foreign stocks outperformed U.S. stocks for the week, helped by a weaker U.S. dollar, with Europe beating Japan. Europe’s gains appeared to be partially due to ECB comments about inflation appearing more balanced and ‘contained.’ Emerging markets also fared positively, with gains in China (and ETF surrogates, as Chinese markets are closed for holiday for a week), in addition to continued strength in South Korea and Taiwan, which are especially tied to U.S. technology sentiment.

Bonds fell back for the week, in keeping with prior U.S. government shutdown episodes. This propelled U.S. Treasuries and investment-grade corporates higher, while high yield and floating rate bank loans also gained to a lesser degree. International bond benefited from a decline in the U.S. dollar, in addition to falling yields.

Commodities were mixed, with gains in precious (gold, in continued momentum) and industrial metals (copper, due to a mine disruption) offset by declines in energy. Crude oil prices fell over -7% last week to $61/barrel, due to continued concerns over high supply inventories and tepid demand, and specifically early reports of an OPEC+ production increase for November. A fire in a Southern California refinery late in the week didn’t negatively affect prices for gasoline right away, but this could be a factor in the coming week. Refinery capacity is somewhat limited in certain locations, making these especially sensitive to supply disruptions.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.