October 13, 2025

“The true investment challenge is to perform well in difficult times.”

Seth Klarman

Well, we finally got a pullback on this roaring market, a bit overdue but first here are the numbers. The S&P 500 finished the week off 2.69%, The Dow Jones Industrial Average lost 2.77%, the Nasdaq surrendered 3.01%. Internationally, it fared better with the FTSE 100 off only .67% and the MSCI-EAFE retreated 1.11%. The 2-year Treasury paid 3.529% and the 10-Year yield was 4.055%.

Last Sunday, the bull market that began in October 2022 will officially blow out the candles on its third birthday cake. So far, the gains have shown no sign of slowing down, until this week. Since the rally began, U.S. stocks have powered higher with few interruptions. In April, an abrupt tariff-inspired selloff nearly brought the bull run to an end, falling by roughly 19% from a record closing high on Feb. 19, bringing the large-cap index to the edge of a bear market. But the market bounced back with unprecedented speed. By the end of June, the S&P 500 had recorded its fastest-ever trip back into record territory following a drop of 15% or more, according to Dow Jones Market Data. It bears remembering that what goes up will come down the question is how much? After this heated and volatile market due to radical changes in government policy, Administration war with the Federal Reserve over monetary policy, optimism about a lasting peace in the middle east, and tariff revenue beginning to show up on the national balance sheet, it has been quite a year so far, so where do we go from here?

The upcoming week will be shaped largely by the ongoing U.S. federal government shutdown, which has delayed key data releases such as retail sales and the Consumer Price Index (CPI). The Federal Reserve remains one of the few operational institutions and will publish its Beige Book midweek, providing valuable anecdotal insight into economic activity, inflation, and labor trends. With the shutdown curbing access to official data, markets will look closely at this report to gauge how businesses and consumers are reacting to new tariffs, supply chain uncertainty, and slowing job growth. Retailers, meanwhile, are pushing early holiday promotions in an effort to secure consumer spending before confidence erodes further.

Globally, economic updates will come from several major regions. China’s trade surplus is projected to narrow slightly to $98.3 billion as exports rebound 6.5% year-over-year despite ongoing U.S. tariffs, while India’s inflation is expected to ease to just 1.5%. In Europe, Germany’s inflation remains stable at 2.4%, but industrial production across the Eurozone is forecast to drop by nearly 2%, highlighting the bloc’s manufacturing struggles. Japan and Australia will release key data on machinery orders and labor markets, both of which could influence monetary policy decisions in November.

In the United States, modest expectations prevail across the board: retail sales are seen rising just 0.4%, producer prices 0.3%, and industrial output 0.1%. Housing starts and consumer spending appear stagnant as both households and businesses react cautiously to policy uncertainty and higher import costs. With inflation hovering around 3%, the Federal Reserve faces the challenge of maintaining stability while the political deadlock in Washington disrupts economic visibility.

So, as we weather this current storm, earnings still have yet to disappoint, Inflation has been mild but still closely watched, and real income has been improving, putting more money in the consumer’s pocket. It appears the administration has plans to further bolster household budget with serious consideration to a tariff bonus to the American taxpayer. This is more political than economic but has the benefit of serving both masters. Earnings season kicks into gear this week, with the government shutdown approaching a third week. The corporate results will give investors something to chew on, absent economic data from the federal government. The consumer price index, originally scheduled for release on Oct. 15, was going to be the main focus, but that has now been pushed back to Oct. 24, with the Bureau of Labor Statistics recalling some employees to collect data for the all-important report. The Social Security Administration needs inflation data to set its annual cost-of-living adjustment.

The labor market is bending but not breaking and interest rates are likely heading lower. And so, the bears were in retreat, now they have had their day, last Friday, driven mostly by high valuations and the renewed trade wars with China, it is our belief it will be short lived, “It always seems like a sucker’s bet to put any money into the market when it’s trading at all-time highs,” writes Bespoke Investment Group co-founder Paul Hickey. “As the seemingly intelligent pundits will say, the easy money has been made (even though they were never out there a year ago saying the easy money is about to be made).” And yet, historically, it hasn’t really been a foolish move to buy at records, Hickey notes. Since 1953, the S&P 500’s historical returns following a close at a record high is only “slightly less positive” than its average return for all periods since 1953. (Not that we are advocating for aggressive buying now.) This comes from one old enough to remember my utter disbelief when Sir John Templeton was calling for a 3000 Dow when it was at 780.

So, expect some more bumps for the rest of this quarter but we still see a good 2025.

Mike