Strong Earnings Data Offset Trade and Banking Worries

Performance for Week Ending 10.17.2025:

The Dow Jones Industrial Average (Dow) added 1.6 percent, the Standard & Poor’s 500 Index (S&P 500) gained 1.7 percent, and the Nasdaq Composite Index (Nasdaq) finished up 2.1 percent. Sector breadth was positive with all 11 of the S&P sector groups closing higher. The communication services sector (+3.6 percent) was the best performer followed by real estate (+3.4 percent) and technology (+2.1 percent).

*See below for Index Definitions

MARKET OBSERVATIONS: 10.13.2025  – 10.17.2025

The S&P 500 finished the week higher, reflecting the strong start to third quarter earnings season and dovish Federal Reserve (Fed) commentary, which all but guaranteed the Fed will reduce rates by 25 basis points at its upcoming meeting. According to Bloomberg’s World Interest Rate Probability tool, the odds of a quarter point rate cut at the conclusion of the Oct. 29 Federal Open Market Committee (FOMC) meeting finished the week at 101 percent, suggesting investors see no chance of a 50 basis point move. Trading during the week was volatile amid renewed trade tensions between the United States and China, as well as concerns over the health of the banking system after news of credit losses at two regional banks sparked worries of contagion across the broader banking system.

Fed Beige Book: The Beige Book report, a compilation of anecdotal evidence on economic conditions in each of the 12 Fed districts, showed that economic activity in the U.S. was little changed since early September. The report said overall consumer spending has edged down in recent weeks, although auto sales were boosted in some districts by strong demand for electric vehicles ahead of the expiration of a federal tax credit at the end of September. Regarding inflation, the Beige Book said prices rose further during the reporting period, with several district reports indicating input costs increased at a faster pace due to higher import costs and the higher cost of services. The report also said employment levels were largely stable in recent weeks, while demand for labor was generally muted across districts and sectors. Looking ahead, the Fed said the outlook for future economic growth varied by district and sector, as sentiment improved in some districts but others continued to expect elevated uncertainty to weigh down activity.

Fed Speak Turns More Dovish: In a keynote speech at the annual meeting of the National Association for Business Economics, Fed Chairman Powell said that there has been little change to the economic picture since the last FOMC meeting four weeks ago, at which rates were lowered by 25 basis points. Powell said that reductions in immigration and labor force participation have produced a less dynamic labor market and heightened employment risks, while inflation remains above the Fed's 2 percent goal and near-term inflation expectations have increased. Powell also signaled that the central bank may stop shrinking its balance sheet in the coming months. In a separate meeting, Boston Fed President Collins said the Fed should continue lowering interest rates this year to support the labor market while keeping rates high enough to make sure inflation remains in check. Fed Governor Waller said the central bank should lower interest rates by 25 basis points at its October meeting, citing continued weakness in the labor market. Fed Governor Miran said he would favor a 50 basis point interest rate cut this month, and repeated his view that trade tensions add uncertainty to the economy and increase downside risks to growth. Philadelphia Fed President Paulson signaled she favors two more quarter point interest rate cuts this year as monetary policy should look through the impact of tariffs in consumer price increases.

Q3 Earnings: So Far, So Good: As of Friday, 58 members of the S&P 500 have released fiscal third quarter results, with 49 of the 58 (85.5 percent) surprising to the upside. So far, aggregate earnings for this group are up 16 percent from a year ago, solidly ahead of the current 7.7 percent projected year-over-year growth rate for the overall quarter. On the sector level, the biggest upside surprises are coming from consumer discretionary and financials. In terms of year-over-year growth, technology, and financials are leading the pack.

Economic Roundup: The ongoing government shutdown continues to create a void in official economic data, putting the spotlight on private sector data and a heightened focus of commentary from Fed officials. A report released by the National Association of Home Builders (NAHB) showed homebuilder confidence in the United States improved by much more than anticipated in October. The report said the NAHB/Wells Fargo Housing Market Index jumped to 37 in October after holding steady at 32 in September. Meanwhile, the Philadelphia Fed released a report showing a substantial pullback by its reading on regional manufacturing activity so far in October. Mortgage applications in the United States decreased for a third week in a row, according to survey results from the Mortgage Bankers Association. The market composite index, which measures the house purchase mortgage loan application volume, dropped a seasonally adjusted 1.8 percent in the week ending Oct. 10, following a 4.7 percent decline in the previous week. During the period, the 30-year fixed mortgage rate fell slightly to 6.42 percent from 6.43 percent. Elsewhere, New York manufacturing activity saw a significant turnaround in October, according to a report released by the New York Fed, as its general business conditions index surged to 10.7 in October after plunging to -8.7 in September, with a positive reading indicating growth.

The Week Ahead: While the government shutdown continues to affect government data releases, the September consumer price index (CPI) report is scheduled to be released on Friday. According to Bloomberg data, the headline CPI is expected to climb by 0.4 percent on a month-over-month basis, while the core CPI is forecast to rise by 0.3 percent. Other data reports of interest include September existing home sales and the S&P manufacturing and services purchasing managers indexes. The earnings calendar will move to the front burner this week, with 86 members of the S&P 500 scheduled to release results during the week. Highlights include Tesla, Netflix, Procter & Gamble, General Electric, and Intel. The Fed speaking calendar will be nonexistent as Fed members are subject to the traditional blackout period ahead of the Oct. 28–29 Fed meeting.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Nasdaq Composite Index is a broad-based capitalization-weighted index of stocks in all three Nasdaq tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.