Economic Update 11-03-2025

Economic data from the U.S. government remained on hold, while private sources showed housing prices flattening, and continued challenged consumer sentiment. The Federal Reserve cut interest rates by a quarter-percent, as markets already expected.

Equities were mixed globally, with gains and losses dispersed by region. Bonds were largely down in the U.S. upon higher interest rates, and mixed abroad, with a stronger dollar. Commodities were also mixed, with oil prices little-changed.

U.S. stocks saw gains in the large cap area, while small caps fell back, which largely appeared to be interest rate related. were boosted by what seemed to be progress on a U.S.-China trade agreement and loosening of tensions at the ASEAN Summit in Malaysia. By Thursday, a 1-year trade truce was announced. While temporary, this included a reduction of U.S. tariffs on Chinese imports, as well as China’s suspension of rare earth mineral export controls, and their resumed purchasing of U.S. agricultural exports, particularly soybeans. Mid-week, the FOMC decision was seen as a positive, which reversed a bit as Chair Powell noted that a December cut was “far from certain,” pulling back on dovishness a bit. However, by the end of the week, despite strong revenues (from firms like Meta), hints of strong spending on AI for the next quarter and into 2026 had investors on edge a bit with returns on investment yet to be determined, although sentiment for the AI concept remains one of the primary drivers of sentiment. The U.S. government remains closed, now having reached a full month, and threatening the record 35 days from the 2018-19 shutdown, and is now assumed to perhaps trim a full percent off of Q4 GDP growth, although that could be made up in Q1-2026.

Conditions were mixed by sector, with 3% gains in technology (Apple and Nvidia, primarily, with the latter becoming the first $5 trillion market cap company) and consumer discretionary (Amazon and Tesla), while materials and defensive areas consumers staples and utilities led on the downside with negative returns of -4%. Communications stocks saw a unique mix, with gains in Alphabet offset by a decline in Meta but ended relatively flat on net. Real estate also declined by over -4%, with interest rates ending the week higher.

Insofar as earnings were concerned, per FactSet, 64% of firms in the S&P 500 have now reported Q3 earnings, with 83% showing a positive earnings surprise and 79% a positive revenue surprise. The blended year-over-year growth rate has ticked up to 10.7%, and at a pace to end just under the 12% growth of Q2. Leadership and improved expectations continue to be led by technology and utilities, but also financials, while communications earnings growth has turned negative. Expectations for Q4 have remained steady, having crept up a few tenths to 7.6%, also above-average.

Foreign stocks were mixed, in keeping with a stronger U.S. dollar, with gains in Japan and the emerging markets offset by declines in Europe and the U.K. The European Central Bank and Bank of Japan both met last week as well, and kept interest rates on hold for now, with more of a balance between growth and inflation, and importantly, not being subject to the employment mandate as in the U.S. The Bank of Canada also cut rate by a quarter-percent, although they suggested that their cutting was just about finished, with inflation near to where they wanted it. In EM, results were similar to recent weeks with South Korea seeing gains along with strength in U.S. technology stocks, as well as in Brazil and Mexico, which offset declines in China. Stocks rose by 40% in frontier market Argentina, as President Milei’s party performed more decently than expected, helping sentiment in that region in search of longer-term financial stability.

Bonds fell back last week with a hawkish response during the FOMC news conference creating some doubt around the December meeting. Floating rate bank loans were the sole group seeing gains, while investment-grade corporates declined nearly a percent. Foreign bonds were mixed, in keeping with respective hedged exposure to the dollar, which gained a percent for the week.

Commodities were little-changed on net for the week, aside from a rise in natural gas prices due to colder winter weather forecasts, with slight gains in agriculture offset by a pullback in precious metals, as global trade risk abated a bit. Crude oil prices fell -1% last week to $61/barrel, with little news relative to the previous week.

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.