October 20, 2025

Financial Markets

  • The risk asset rally that started in the second quarter continued with several global equity indices setting new record highs. Some easing in trade tensions, strong earnings reports, some improvement in economic data, robust investment in artificial intelligence (AI) equipment and intellectual property, and expectations for interest rate cuts were the main drivers of the rally.
    • Growth stocks outperformed as the technology sector rallied and small-capitalization (cap) stocks outperformed buoyed by easing monetary policy. Emerging markets outperformed on AI enthusiasm.
  • The U.S. bond market was choppy with yields higher early in the quarter but falling later as it become clear a rate cut was coming.
  • Gold surged to near $4,000 per ounce on central bank buying and safe haven demand due to geopolitical issues.

Overview of the Economy

  • The U.S. labor market showed signs of cooling but appears to be in a “no hire, no fire” mode with the number of new jobs and job openings falling, but unemployment claims staying steady.
  • S. inflation pressures persist with key indicators rising. However, consumer spending remained resilient.
  • The Eurozone avoided a recession due to higher consumer spending that offset falling exports. Inflation was steady.  China’s economic data continues to slow hurt by tariffs and the property sector contraction.

Notable Events

  • The Federal Reserve (Fed) lowered the fed funds target rate by a quarter of a percentage point in September.
  • The U.S. reached trade deals with some key trading partners including Japan and Europe, but the tariff picture remains cloudy with deals with other countries still in negotiation and new product specific levies being added.