ECONOMIC AND FINANCIAL MARKET UPDATE - OCTOBER 2025

Recent Market Trends

Following a strong start to the month, U.S. equity indices have experienced increased volatility following the latest development in the U.S.-China trade dispute. An announcement from Beijing outlined additional controls on the export of rare-earth minerals, which are critical components in the manufacture of many technologies, from semiconductors for smartphones and computers, to electric vehicles, to fighter jets. This announcement was met with a response from the U.S. administration, which threatened to impose 100% tariffs on China along with new export controls on software by November 1^st if Beijing does not revisit the issue.¹ Due to the prospective ramifications of such policy on the global economy, we expect a de-escalation in coming weeks. Still, these announcements resulted in the worst trading session for U.S. equities since April, however, each closed near all-time highs as investors await third quarter earnings results.

Investors remain seemingly unphased by the ongoing federal government shutdown, which has delayed the collection and release of major economic data, such as monthly labor and inflation readings. While the absence of this data may add some complexity to the Fed’s decision making, the market remains convinced that another 25bps cut this month is inevitable. In addition to the outlook for lower rates supporting market sentiment, ongoing large-scale technology investment by U.S. companies continues to dominate headlines, which we continue to believe is a key investment theme. Recent high-profile deals between OpenAI, Nvidia, Broadcom, AMD, Intel, among others are leading the global development and deployment of artificial intelligence and data infrastructure technologies and continue to display the scale and importance of this investment cycle.

Third Quarter Earnings Season Outlook

The estimated earnings growth rate for the S&P 500 for the third quarter is 8.0%, which would mark the 9^th consecutive quarter of year-over-year earnings growth reported by the index. Based on the average improvement in the earnings growth rate during the earnings season, the index will likely report earnings growth above 13% for the Q3, which would mark the 4^th straight quarter of double-digit growth. For additional context, the actual earnings growth rate of the S&P 500 at the end of the quarter has exceeded the estimated earnings growth rate in 37 of the past 40 quarters. The only exceptions were Q1 2020, Q3 2022, and Q4 2022.²

With a 14.2% expected earnings growth rate, the Magnificent-7 stocks continue to account for a significant portion of the expected earnings growth of the overall S&P 500 index, however, the remaining ‘S&P 493’ are still projected to rise by 6.5% in Q3. Due to largely measured guidance in recent quarters, we expect an upside surprise to earnings growth in Q3. Last quarter, the estimated earnings growth rate for the ‘493’ was 2.1%, while the final reported growth rate was 8.6% (6.5% higher than expectations!).³

Economic Growth

U.S. Gross Domestic Product (Q2 2025, Third Estimate)

The final estimate for second quarter GDP growth was another upward revision to +3.8% annualized, much stronger than expectations of 3.3%. Compared to the first quarter result of -0.6%, the increase in GDP is attributable to a decrease in imports and an increase in consumer spending which were partly offset by declines in investment and exports.  Compared to the second estimate, Q2 GDP was upwardly revised by +0.5%, primarily reflecting strength in consumer spending despite headwinds from widely anticipated tariff pricing impacts and softening labor market conditions.⁴

Federal Reserve Bank of Atlanta GDPNow

The October 7^th GDPNow model estimate for third quarter real GDP growth is +3.8%. Due to the government shutdown, the update originally scheduled for October 9^th will be deferred until new data is available.

Institutional forecasts for the third quarter have trended upward in recent months and are now entirely positive with the consensus between +1.0% and +1.5%, indicating that two consecutive quarters of negative GDP growth, and thus a recession, are not anticipated.

GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. ⁵

Consumer Strength and Confidence

While consumer sentiment and confidence survey results continue to allude to significant uncertainty, we believe the consumer remains strong, supported by robust balance sheets. Consumer net worth – which typically leads consumer spending, and thus, economic growth – is on track to increase by 10.5% year-over-year in the fourth quarter of 2025, while disposable income continues to grow at a steeper rate in the post-pandemic era. Finally, household debt obligations – though elevated from the pandemic era – remain low relative to recent decades, indicating that the consumer remains healthy.⁶

Inflation Data

Bureau of Economic Analysis Personal Consumption Expenditures

Per the September 26^th data release, core PCE rose +0.2% in August, as expected, marking the fifth consecutive monthly increase. On an annualized basis, Core PCE increased +2.9%, also in-line with estimates. Personal spending increased +0.6%, slightly higher than expectations of +0.5% growth. Income was also up more than anticipated, up +0.4% against expectations of a +0.3% increase.

This report further indicates that tariff policy continues to have a limited impact on consumer prices due to a combination of remaining pre-tariff inventories and cost-absorbing measures from companies. Goods prices increased +0.1%, while services increased +0.3%. Despite widespread fears of tariff pricing impacts, consumers have been remarkably resilient throughout the summer and into the fall, as growing incomes have supported both spending and saving, which was up +0.2% to +4.6%.⁷ While the PCE price incex remains above the Fed’s 2% target, markets continue to expect two additional rate cuts by the end of the year. A breakdown of monthly changes in spending by category is displayed below.

Bureau of Labor Statistics Consumer Price Index

Originally scheduled for October 15^th, the BLS will now publish the September 2025 CPI report on October 24^th. No other data releases will be rescheduled or produced until the reopening of federal offices.⁸

Labor Data

U.S. Department of Labor Initial Jobless Claims

Due to the government shutdown, the most recent unemployment claims report was released on September 25^th for the week ending September 20^th. Initial claims decreased by 14,000 from the previous week to 218k against an expected 235k, marking the softest result since July. The recent spike to 264k on September 6^th, which garnered significant media attention, was attributed to a 92% surge in claims across multiple industries in Texas, with reports emerging of incorrectly-filed and fraudulent claims having inflated the number and distorted the data. The less-volatile four-week moving average was 237,000; an decrease of 2,750 from the prior week and remains within the historically healthy range of 200k-250k.

Continuing claims, which trail the initial claims metric by one week, continue to moderate and further declined by 2,000 to 1,926k, less than expectations of 1,938k. The four week moving average was 1,930k, down 4,500 from the previous week’s figure.⁹ Though continuing claims have trended upward in recent months, both the weekly metric and four-week moving average remain well below the long-run (1967-2025) average of 2,738k.¹⁰

Bureau of Labor Statistics Employment Situation

September Employment Situation data (scheduled for release on October 5^th) is not available due to the ongoing government shutdown.

Our Thoughts

Our view of the U.S. economy and financial markets remains constructive, as both businesses and consumers continue to display remarkable resilience in the face of ongoing headwinds. As the federal government shutdown and subsequent delay of data availability clouds the economic outlook of the Federal Reserve somewhat, we expect a more cautious tone from the Fed going forward. We believe dovish policy from the Fed coupled with expected strength in corporate earnings will continue to support equity prices in the near term. As such, we remain focused on fundamentally strong companies within the technology, health care, industrials, and communication services industries, which continue to drive economic growth due to the scale and long-term nature of capital investment in these sectors. Uncertainty lingers, as highlighted by the recent trade policy induced sell-off, but we believe the U.S. economy remains well-positioned for growth via technology-driven productivity gains.

Though we acknowledge the bifurcation between the upper and lower-end consumer, overall trends in earning, spending, saving, and debt utilization remain positive. Despite negative/depressed sentiment surveys, the U.S. consumer continues to spend and support GDP growth at a greater rate than was forecasted earlier in the year. We continue to closely monitor available labor data via private outlets and regional surveys, as federal labor data releases are on hold.

Corporate earnings in prior quarters have consistently surprised to the upside, a trend we expect will continue. Though earnings remain supportive of stock prices, we remain cognizant of heightened valuations compared to historical norms. As such, we continue to opportunistically and tax-efficiently reduce equity holdings which may have become overweighted relative to investment policy guidelines as the equity markets have continuously climbed to new highs. Though volatility in equity markets has remained largely subdued following April’s tariff pause, we continue to expect heightened volatility though year-end and into early 2026.

As always, we believe patience, discipline, and maintaining a long-term perspective are of paramount importance in achieving superior long-term absolute positive and relative rates of return. We highly value your relationship and thank you for your confidence. We wish you a pleasant upcoming holiday season and look forward to speaking with you soon.

Sources

¹ https://www.wsj.com/politics/policy/trump-china-tariffs-rare-earths-xi-meeting-8053c81a?st=dxve4v&reflink=desktopwebshare_permalink

² https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101025.pdf

³ https://yardeni.com/morning-briefing/on-japan-france-europe-sp-500-earnings/

⁴ https://www.bea.gov/news/2025/gross-domestic-product-2nd-quarter-2025-third-estimate-gdp-industry-corporate-profits

⁵ https://www.atlantafed.org/cqer/research/gdpnow/archives

⁶ https://evercoreisi.mediasterling.com/document/CE2E13D1-5C18-42A2-AE5B-FC6464AAC56F

⁷ https://www.bea.gov/news/2025/personal-income-and-outlays-august-2025

⁸ https://www.bls.gov/bls/092025-cpi-reschedule-notice.htm

⁹ https://www.dol.gov/ui/data.pdf 

¹⁰ https://tradingeconomics.com/united-states/continuing-jobless-claims

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Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and Parkview Partners Capital Management are separate entities.

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