Solid Earnings and Policy Signals Steady Market Outlook Amid Data Void

Matthew Rubin Chief Investment Officer

 

1. Major banks outperformed expectations, setting a positive tone for a broadly stronger earnings season.
2. Federal Reserve (Fed) Chair Jerome Powell’s remarks reinforced expectations for an October rate cut, driving bond yields to multi-year lows.
3. With key economic reports delayed, investors are leaning on limited survey data and betting on Fed rate cuts.

 

1. Strong Start to Earnings Season Boosts Market Confidence

Earnings season began on a strong note last week as several major U.S. banks reported third-quarter results that exceeded forecasts for both revenue and profit.¹ The reports suggested healthy consumer activity, resilient credit quality, and solid trading performance.

Overall, S&P 500 company earnings are projected to rise by about 8% year-to-year, with seven of the 11 major sectors expected to post higher profits.¹ If they materialize, these earnings gains would demonstrate improved market breadth after months of narrow leadership by technology companies. Technology firms remain likely to deliver the fastest growth, followed by utilities and materials.¹ With valuations still elevated, continued earnings strength remains critical for sustaining market momentum through year-end.

2. Fed Signals October Rate Cut as Bond Yields Drop

Fed Chair Jerome Powell signaled last week that the central bank is preparing to lower interest rates at its October 29 meeting.² While acknowledging that inflation remains above the Fed’s 2% goal, Powell emphasized growing downside risks to the labor market after several months of slowing job growth.² His comments suggest the Fed still views modest policy easing as the best way to manage economic uncertainty.

Powell also indicated that the Fed may soon end the runoff of Treasury securities accumulated during past rounds of quantitative easing, a step that would stabilize the central bank’s balance sheet. The prospect of rate cuts alongside steady bond holdings sparked a rally in U.S. government debt. Yields on short-term Treasuries fell sharply, with the two-year note nearing its lowest level in three years.² The benchmark 10-year yield has once again approached the 4% mark, underscoring investor confidence that monetary policy will remain supportive in the months ahead.²

3. Government Shutdown Creates Data Void, Markets Turn to Surveys

The ongoing federal government shutdown has left markets flying partially blind, with a growing list of postponed economic reports. Last week saw retail sales delays, jobless claims, Consumer Price Index, and Producer Price Index releases, while the industrial production report, scheduled for Friday, was also canceled. With official data unavailable, investors have shifted focus to private-sector indicators and regional surveys for clues about economic momentum.

This week’s declines in the Philadelphia Fed and New York Fed business surveys, which cover regional manufacturing activity and broad business conditions across manufacturing and services, respectively, drew more attention than usual. However, these indicators cover narrow parts of the economy and tend to fluctuate sharply from month-to-month.² Analysts caution that the current data vacuum could lead to overreactions.² In the absence of clear signals, markets appear to be assuming that the Fed will move forward with rate cuts to cushion uncertainty. Comments from Fed Governor Christopher Waller, who supported gradual 0.25% reductions, reinforced that expectation.²

For the period ending 10/17/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Wall Street Journal
² Bloomberg

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A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
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The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200^® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average^® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2025061_31