October 6, 2025

“Everyone’s a genius in a bull market.”

Warren Buffett

Another good week to start the 4th Quarter. Here are the numbers. The S&P 500 gained .81%, the Dow Jones Industrial Average added .98%, the Nasdaq rose .78%. Internationally, it seems to be where all the fireworks were with the FTSE 100 up 2.22% and the MSCI-EAFE booking strong gains of 2.61%. The 2-Year Treasury paid 3.576% and the 10-Year yield was 4.212%,

With the U.S. federal government shutdown entering its first full week, official economic data releases have largely come to a standstill. The only major report expected is the preliminary University of Michigan consumer sentiment index, forecast to fall again in October to around 54.0, reflecting persistent worries about inflation and job security. The Federal Reserve will release minutes from its September meeting, though they are largely outdated given the shutdown and new trade tariffs. Economists warn that without timely data; it will be harder for the Fed to assess conditions ahead of its late-October policy meeting. Having said that Barrons Paul La Monica reports that investors just “aren’t sweating the government shutdown.” He notes that Wall Street’s fear index, the Cboe Volatility Index, remains in the mid-teens, “a muted level that hardly suggests” panic. In the meantime, investors are expecting another rate cut later this month, along with a strong round of third-quarter earnings reports. Paul writes: The combination of healthy earnings gains and the expectations of more monetary policy easing could juice stocks further in the fourth quarter, regardless of when and how the dysfunction in Washington, D.C., finally resolves itself.

U.S. equity valuations are very elevated but are supported by strong and improving fundamentals. The earnings outlook is favorable, but any hiccups could be punished more harshly than normal. Meaning increasing volatility at least this month. However, U.S. growth equity fundamentals continue to accelerate. Recently introduced tax incentives should also help. However, extended valuations make risk/reward less attractive. Potential for deregulation as well as support from fiscal policy and re-shoring; however, modest economic growth and housing market weakness remain headwinds. As for Mid and Small caps, Mid-cap companies generally have lower leverage and greater potential for higher quality earnings growth relative to Small- caps. Overall, we expect our early analysis for a good 2025 to hold completing a successful 3-year bull run for the US Markets. Europe and foreign stocks are still at good value despite this year’s run up so we will maintain our overweight position as we have been well rewarded so far this year.

In the week ahead, global economic focus will center on the Swiss National Bank (SNB), which may reintroduce negative interest rates amid near-zero inflation and a weakening economy. With consumer prices essentially flat and inflation forecasted to remain subdued for the next two years, the SNB has room to cut its policy rate by another 25 basis points to -0.25%. A key driver of Switzerland’s economic softness is the impact of steep U.S. tariffs (39%) on exports, particularly in chemicals, pharmaceuticals, and luxury watches. Trade data for August showed a sharp drop in the surplus with the U.S., reinforcing concerns about weakening external demand. While negative rates may offer short-term relief, they risk pressuring Swiss banks unless exemptions are reinstated.

In the U.S., attention shifts back to economic data following the Fed’s recent policy meeting. Key housing data will provide insight into the health of the real estate market, with new home sales potentially benefiting from a steady decline in mortgage rates—now at 6.26%, the lowest since October 2024. However, existing home sales may remain soft due to delayed effects of higher rates earlier this summer. Meanwhile, August’s durable goods orders are expected to fall, and Friday’s personal income and spending report will gauge consumer momentum. Core PCE inflation—the Fed’s preferred metrics forecast to remain at 2.9% year-over-year, suggesting inflation pressures are easing without a sharp slowdown in demand.

As the 4th quarter progresses, typically a good time of the year for stocks, we expect some gyrations particularly as the government shutdown political games continue , but expect in the end the republicans will prevail the Democratic position is to undue the significant provisions of the “Big Beautiful Bill” any casual observer who has watched this president operate will know not a lot of chance in their “ minority position” and the fact the electorate voted for many of these policies, that they will be successful.

Mike