October 20, 2025

 “Money is made not in buying/selling but in waiting. Which I have learned hard way multiple times that it’s seared in my head.”

Charlie Munger

Not a bad week for investors, with most asset classes closing in the black. Here are the numbers. The S&P 500 gained 1.8%, the Dow Jones Industrial Average added 1.08%, the Nasdaq was uninspired but went up by 45% Internationally The FTSE 100 took profits off .77, and the MSCI-EAFE had a good week, up 2.5%. The 2 Year Treasury paid 3.464% and the 10-Year offered 4.011%.

Of course, this comes after a sharp correction last Friday after more ‘on-again, off-again’ tariffs news, but like much that’s happened this year, the news cycle lasts maybe a day at most. This latest trade tiff concerns rare earths. China wants to limit exports to the U.S. With the government shutdown still in place, there isn’t much economic news to digest.

As earning season progress, the banks are first, J.P. Morgan took a good-sized charge against earnings to account for possible credit losses. During the firm’s earnings call, CEO Jamie Dimon noted that “When you see one cockroach, there are probably more.” This triggered a conversation about credit risk and bank underwriting standards. Zions Bank said Wednesday evening that it faced a sizable charge due to bad loans to ‘a couple of borrowers.’ As you would expect, bank stocks underperformed the broad market this week. The large bank ETFs were up or down fractions of a percent for the week. Smaller regional banks were hit harder.  In other news, oil prices were noticeably weak. WTI crude closed well below $60, and prices are now down roughly -20% for the year. This latest decline pushes prices below the depths of the spring selloff related to the liberation day. Those of you who live in Illinois can count on the politicians to fill the gap with additional taxes.

And interest rates? We expect an interesting seven trading days going into the Fed meeting on October 29th. Credit jitters combined with less inflationary pressures from oil certainly means a quarter-point cut is basically a lock. Supporting this idea is that Chairman Powell laid the groundwork to end Quantitative Tightening in his comments this week. Without any payroll numbers between now and the 29th, it’s unlikely we will see a larger rate cut than currently expected, but the longer the government shutdown persists, the more likely the Fed is to point towards a series of cuts in the first quarter next year. Elevated food and energy prices, along with tariff pass-through, suggest continued inflationary pressures. The Federal Reserve enters a communications blackout ahead of its October 28–29 FOMC meeting, offering no fresh insight into its policy path.

In other earning season news, financials found support from strong Q3 results at Wells Fargo and American Express, though fresh loan write-offs at smaller banks reignited volatility in the regional space. Ford issued a recall on over 290,000 vehicles, adding pressure to auto stocks. Meanwhile, gold surged to a new high, and oil saw modest gains. Earnings, AI momentum, and sector rotation remain in focus as markets balance bullish drivers against financial and geopolitical uncertainty.

Last week Wall Street cruised to the finish of a winning week last Friday after banks recovered some of their sharp losses from the day before. The S&P 500 rose 0.5%. The Dow Jones Industrial Average added 238 points, or 0.5%, and the Nasdaq composite climbed 0.5%. The gains capped the best week for the S&P 500 since early August, but it was a roller-coaster ride. Indexes careened through several jarring swings as worries built about the financial health of small and midsized banks, as well as the souring trade relationship between the United States and China. Wall Street cruised to the finish of a winning week on Friday after banks recovered some of their sharp losses from the day before.

While the economy seems to be chugging along, the list of possible threats appears to be getting longer as banks clock signs of tariff stress as well as some weakness in certain sectors — such as sluggish home construction and softness in the auto-financing business.

The upcoming week in global economics is marked by limited U.S. data releases due to the ongoing federal government shutdown, now entering its third week. The only major U.S. report scheduled is the September Consumer Price Index (CPI), crucial for determining the 2025 Social Security cost-of-living adjustment (COLA). CPI is expected to rise by 0.4% month-over-month and 3.1% year-over-year, with core inflation also forecast at 3.1%. Internationally, China’s Q3 GDP is projected to slow to 4.7% year-over-year, down from 5.2% in Q2, reflecting weakness in domestic demand and the troubled property sector. Industrial production and retail sales are also forecast to cool, while policymakers gather to discuss the next five-year economic plan, with a focus on boosting consumption and maintaining policy stability. Meanwhile, central banks in South Korea and New Zealand face diverging pressures as inflation remains contained but growth risks linger. In Europe, UK and Eurozone inflation remains elevated, while PMI indicators suggest economic momentum remains fragile.

And the housing market? Mortgage rates have been trending slightly downward in recent weeks, influenced by the Federal Reserve’s rate cuts earlier in the year and softer economic data. However, they remain elevated compared to pre-2022 levels, hovering around 6% for most fixed-rate products. This has kept affordability challenging for many buyers, though a modest uptick in refinance activity has been observed as rates stabilize below 6.5%. Experts like Fannie Mae and the Mortgage Bankers Association (MBA) expect 30-year rates to ease modestly to around 6.4%-6.5% by year-end, assuming another Fed cut in October. Substantial drops below 6% are unlikely due to persistent inflation and Treasury yields. Home sales volumes remain subdued, reflecting the “lock-in effect” where homeowners with sub-4% rates from prior years hesitate to sell and face higher borrowing costs. Inventory is slowly rising (up 8.6% year-over-year to 2.06 million active listings in September), which has led to more price concessions—nearly 20% of listings saw reductions last month. Pending sales rose 4% in August, signaling potential stabilization.

With all this going on, it may be easy to forget that we just celebrated year three of this current bull market. Investors who let April’s tariff drama scare them away from the stock market missed out on the S&P 500’s 35% growth that followed in the next six months. For those investors, that may be a hard pill to swallow.

Mike