Market Update – October 20, 2025

Financial Markets

Following recent volatility tied to renewed U.S.–China trade tensions, markets steadied and ended the week higher as the diplomatic tone improved and early Q3 earnings helped restore investor confidence. The Nasdaq Composite led the weekly gains, rising 2.1%, followed by the S&P 500 (+1.7%) and the Dow Jones Industrial Average (+1.5%).

Despite the continued government shutdown, cautious remarks from Fed Chair Powell, and emerging credit and fraud-related risks in regional banks, markets absorbed mid-week volatility and recovered swiftly, supported by resilient corporate results and growing expectations of more accommodative monetary policy.

Source: Y-Charts

Market News

Fed Policy & Data Watch

Calibrated Patience Amid Delayed Visibility. In a closely watched address on Tuesday, Fed Chair Jerome Powell reiterated that monetary policy remains “data-dependent but patient,” citing recent improvements in financial conditions while warning that fiscal instability poses downside risks.

The Federal government’s budget impasse has delayed several key economic releases, including September CPI, PPI, and retail sales data, complicating the Fed’s visibility into underlying inflation trends. In the absence of official readings, investors leaned on private-sector proxies and commentary from Fed members, which continue to support a “soft-landing” narrative.

According to the CME Group’s FedWatch, markets are pricing in a 99% probability of another 25-basis-point rate cut, with a 94% chance of a second cut by December.

Source: CME Group, as of 10/18/25

Early Q3 Earnings: Banks and Tech Kick Off with Mixed Signals

Major financial leaders, including J.P. Morgan Chase, Goldman Sachs, Wells Fargo, and Bank of America, reported stronger-than-expected earnings for Q3 last week. However, bank executives noted widening gaps between lower- and higher-income consumers and warned that delinquencies could be on the rise, highlighting underlying risks beneath otherwise solid earnings.

While Wells Fargo and Bank of America shares posted gains, J.P. Morgan slipped after announcing a $170 million loan charge-off tied to the bankruptcy of subprime auto lender Tricolor. Goldman Sachs also declined as weaker trading results and higher operating costs weighed on sentiment.

Source: FactSet

In the technology sector, TSMC delivered a standout Q3 with 30.3% annual revenue growth and a 39.1% earnings increase, raising its full-year outlook amid surging AI demand and lifting market sentiment. Salesforce also raised its long-term revenue forecast, projecting growth of more than 10% annually through fiscal 2030, which pushed its stock up roughly 5% in extended trading on Wednesday last week.

With several constituents reporting last week, analysts have maintained expectations for the Technology and Financials sectors to lead earnings growth this quarter.

Source: FactSet, as of 10/17/25

Trade Tensions and Credit Risks Added Volatility

Early in the week, President Trump sought to reassure investors, saying “Don’t worry about China, it will all be fine.” However, tensions escalated after Beijing accused Washington of “weaponizing” rare-earth supply chains following new U.S. export restrictions on advanced materials. In response, President Trump called the situation “not sustainable” and signaled that additional tariffs could be reconsidered if talks stalled.

Accordingly, the VIX briefly climbed above 24 on Thursday last week, its highest level in five months, after a spout of market volatility triggered by these renewed U.S.–China trade frictions. By the end of the week, markets had rebounded, and volatility settled modestly as both nations agreed to resume working-level discussions and hold off on tariff increases.

Source: Y-Charts

Also last week, fresh credit fraud and bankruptcy headlines from regional banks added to market volatility, as shares in the group fell amid several commercial credit events and loan portfolio losses. JPMorgan’s Jamie Dimon cautioned that more “cockroaches,” or additional credit losses, could be lurking around the corner.

There were other signs of stress. Federal Reserve data showed that banks tapped the central bank’s overnight repurchase facility for the second consecutive night, a step not frequently taken in recent years. The facility allows banks to exchange highly liquid securities such as Treasuries and mortgage-backed bonds for cash to cover short-term funding needs.

Source: Federal Reserve Bank of New York

Regional bank shares partially recovered later in the week after Fifth Third Bancorp reported stronger than expected earnings and contained credit losses, while analysts characterized the recent charge-offs as isolated rather than systemic.

Source: Y-Charts

Summary

Markets ended the week higher despite Federal shutdown uncertainty, mid-week volatility, and renewed credit-risk headlines. A late-week rebound in risk appetite reflected improved trade sentiment, resilient early earnings, and expectations of policy easing into year-end. We will continue to monitor upcoming corporate results, delayed consumer and inflation data, and evolving trade and credit conditions among regional banks.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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