Weekly Market Report: October 17th, 2025
Markets last week remained in a partial economic data vacuum due to the government shutdown but still had the first batch of third quarter earnings reports, ample Fed speak, and some subtle AI and credit undertones to shape trading. The week began with an S&P 500 recovery rally that held on for a 1.7% gain and international developed (+2.5%) and emerging (+4.3%) participated and benefitted from a weaker USD (- 0.55%). Bond yields fell, reflecting slowing growth and perhaps echoed some credit and AI momentum
concerns.
Financial Market Highlights
- Third quarter earnings season kicked off last week on sound footing with a 7.5% bottom line expectation on positively skewed guidance and modest upward street revisions.
- Signs of credit stress at U.S. regional banks (ZION , WAL ) kept percolating last week. While equity markets have remained relatively sanguine, global high yield spreads have begun to widen.
Economic Highlights
- An Atlanta Fed 3.9% Q3 GDP forecast would typically coincide with accelerating employment yet the consensus outlook is currently centered on a decelerating growth outlook with capital expenditures , personal consumption, and the housing market; all key questions going forward.
- Sell side analysis of state level unemployment claims fell from 235k to 217k last week and thanks to social security statutory requirements, markets will get a CPI reading on Friday.
Policy Highlights
- With no resolution in sight on the government shutdown, the economic data vacuum continues.
- China is maintaining two trade war fronts with the Dutch government blurring the business and national security line further last week by taking control of a Chinese owned semiconductor company, Nexperia, due to “serious governance shortcomings.” This in addition to recent U.S./China narratives.
- New research from Alvarez & Marshall suggests deregulation in the banking sector is set to unlock a significant amount of lending capacity, boosting both EPS and ROE across the industry.
Bullish Asset Allocation Narratives
- AI momentum, healthy earnings and persistent growth continue against a relatively liquid backdrop.
- Monetary, fiscal, and regulatory policies including a dovish leaning Fed, business friendly deregulation, and front end loaded deficit spending package are all supportive for risk assets
- Tariff tax policy uncertainty is fading with administration officials aggressively pursuing
Bearish Asset Allocation Narratives
- Market reliance on AI momentum coupled with skepticism surrounding circular AI driven capex, realized productivity enhancements, and associated valuation/earnings considerations.
- A monetary policy mistake by the Fed of loosening too quickly given above target inflation, resilient growth, and persistently low unemployment.
- Risks to consumption given normalized interest rates, low growth labor markets, and a fatigued consumer balance sheet.
- Tariff levies moving to multi-decade highs and associated pressure on inflation, profit margins, and consumers with longer-term implications on growth, trade, and consumption.
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