Economic Update 10-27-2025

Economic data remained sparce as the federal government shutdown continued, with the exception of CPI inflation, which remained high, but somewhat cooler than expected. Private sources included gains in manufacturing and services PMI, as well as existing home sales, while weakness continued in consumer confidence.

Equities rose globally, led by the U.S. and emerging markets. Bonds fared positively in the U.S. credit segment, but lagged internationally with a stronger dollar. Commodities were generally higher with additional Russian sanctions reducing potential crude oil supplies.

U.S. stocks started the week strongly, with hopes of both an end to the U.S. government shutdown (which didn’t happen), as well as stronger chances of progress between the U.S. and China, via expected upcoming meetings. By Friday, the delayed September U.S. CPI report came in a bit less inflationary than expected, which raised chances of the Federal Reserve continuing their easing plan this coming week, and perhaps again in December.

The bulk of stock sectors experienced gains for the week, led by technology, energy, and industrials. More defensive consumer staples and utilities were the only declining groups for the week. Real estate saw gains as well, along with general positive risk sentiment and assumed ongoing dovish Fed action this year.

Earnings season for Q3 continued along, with nearly 30% of S&P firms having now reported, per FactSet. The blended year-over-year earnings growth rate for the quarter now having reached 9.2%, about a percent above initial estimates. Profit margins remain elevated (over 12%), in technology, financials, and utilities especially, which has led to earnings leadership there. Markets appeared to shrug off some concern the prior week about credit in regional banking, particularly in sub-prime auto loans. Investors were on the lookout for bad loan ‘cockroaches,’ as JPMorgan CEO Jamie Dimon put it, noting that where there’s one, there are often many more. Bad loans are a common late cycle worry, for good reason in many cases, when loan standards become lax and defaults can more easily bubble to the surface. So far, this does not appear to be the case, but analysts are increasingly watchful, particularly in smaller regional banks where these are more likely.

Foreign stocks fared positively, although to a lesser degree than U.S., with the headwind of a stronger U.S. dollar for the week. The U.K. and emerging markets fared best, while Europe and Japan ended the week having undergone little change. U.K. markets were perhaps helped by a weaker-than-expected inflation report as well (albeit still at 3.8%) and stronger retail sales. In EM, although Brazil and China both saw gains, indexes were led by South Korea and Taiwan, which have a strong correlation to U.S. technology, which had also fared positively.

Bonds generally earned positive returns, despite little change in the U.S. Treasury yield curve. Corporates outperformed governments, in both investment-grade and high yield, with floating rate bank loans faring best. A stronger dollar held back developed market foreign hard currency bonds, while emerging markets fared positively.

Commodities generally gained ground, despite the normal headwind of a stronger dollar, with energy, industrial metals, and agriculture higher, offsetting a pullback in precious metals. Crude oil prices rose over 6% last week to over $61/barrel. The rebound was related to the U.S. administration announcing further sanctions on Russia’s two largest oil producers (Rosneft and Lukoil) following a lack of progress in Russia-Ukraine peace negotiations. As a significant percentage of Russia’s national revenue comes from petroleum, both the sanctions and diplomatic pressure on India and China to find other oil sources aside from Russia remains ongoing. The world remains well-supplied with oil, however, which has kept an upward price spiral at bay for the time being. Gold fell back by -5% on Tuesday, the largest drop in a decade, as tensions between the U.S. and China eased, in addition to a rising dollar. Gold is best thought of as a safe haven asset of sorts, where concerns over geopolitics, independence of the Federal Reserve monetary policy, U.S. government shutdown, and trade uncertainty have boosted the metal’s popularity over the past year, but easing of those same tensions pose a downside risk after such a rally.

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.