Economic Update 10-20-2025

Economic data remained sparce with the U.S. government shutdown continuing beyond its second week.

Stocks rebounded upward last week as U.S. earnings season began. Bonds also saw gains as interest rates fell, helped internationally by a weaker dollar. Commodities rose a bit due to gains in precious metals offsetting declines in energy.

U.S. stocks fared positively for the week, reversing a sharply negative prior week. Markets opened the week positively after the Israel-Gaza ceasefire news, and U.S. administration comments over the weekend that U.S.-China trade tensions “will all be fine,” which neutralized some of the sharp negativity and near -3% drop in the S&P the prior Friday. By Friday, the administration noted that high tariffs on China were “not sustainable.” The back and forth around U.S.-China trade relations continued, while a dovish Federal Reserve, and continued positive sentiment around AI moved prices higher.

By sector, gains were led by communications, technology, consumer discretionary, and consumer staples, each up around 2% or more for the week. Financials were weakest, showing minimal gains, as some regional banks noted some concerns over weakening credit quality (noting fraud in some cases), including two bankruptcies in the sub-prime auto loan segment, which offset better-than-expected earnings results from bigger banks earlier. Time will tell if this problem intensifies and becomes a market concern, although loan delinquencies (especially in the lower-income segment) have risen. Real estate also fared well, up over 3%, as yields declined a bit and double-digit gains in the industrial segment.

Stock earnings for the third quarter began to roll out, with now 12% of firms in the S&P 500 having reported, per FactSet. The blended earnings growth rate for Q3 has ticked up to 8.5%, a half-percent higher than at quarter-end. In looking at the impact of the ‘Magnificent 7’ (mostly Nvidia, as a top 5 contributor for the index), growth of 15% is expected, relative to 7% for the ‘other 493.’ However, the latter is still a bit higher than the longer-term average for the S&P, so not a bad result in its own right.

Foreign stocks lagged domestic, with stronger results in Europe outperforming Japan and emerging markets, even with a half-percent drop in the U.S. dollar, acting as a tailwind. As in the U.S., some de-escalation in U.S.-China trade tensions appeared to help sentiment, while economic results were mixed, and hovered near minimal growth on net. EM results were boosted by technology-correlated gains in South Korea, as well as gains in Brazil and India, while Chinese stocks declined along with U.S. trade tensions.

Bonds fared positively for the week, as interest rates declined across the U.S. Treasury yield curve. Investment-grade and high yield corporates both outperformed governments and floating rate bank loans slightly. Foreign bonds saw gains due to similar yield curve dynamics and a weaker dollar during the period.

Commodities inched higher for the week, as continued gains in precious metals offset declines in energy. Crude oil fell over a percent $58/barrel, as an upcoming U.S.-Russia summit was thought to raise the chances of ease in sanctions, leading to further Russian exports and deepened supply glut globally.

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.