Market Update
Despite some midweek volatility, the S&P 500 finished higher as easing trade tensions and resilient bank earnings helped offset ongoing macro uncertainty. Fed Chair Jerome Powell reaffirmed expectations for another 25-basis-point rate cut at the end of October, even as the government shutdown limited access to key economic data. With official reporting delayed, investors turned to private indicators: inflation trackers showed rising prices for goods such as furniture and household equipment, likely driven by tariffs, while credit and debit card data pointed to softer retail spending, up just 0.2% year over year, with weaker activity among lower-income households. The main story of the week was regarding credit concerns after JPMorgan disclosed a $170 million charge-off tied to the bankruptcy of subprime auto lender Tricolor Holdings, following similar stress from First Brands Group. Currently, the sentiment in the market is that these events were idiosyncratic, but the news reignited worries about potential cracks in private-credit markets, despite strong trading and investment-banking results. Sentiment worsened Thursday as regional lenders Zions and Western Alliance reported fraud-related charge-offs, sending their shares lower, before rebounding on Friday when several banks posted better-than-expected loan-loss provisions. By week’s end, markets recovered as President Trump’s remarks helped ease anxiety around trade tensions, while earnings season continued to show resilience despite the earlier credit-related volatility.
3Q25 Earnings Season
Earnings season continued in full swing this week, led by strong results from major U.S. banks that helped lift overall market sentiment. JPMorgan, Goldman Sachs, and Wells Fargo all reported better-than-expected third-quarter results, driven by resilient consumer activity, robust trading, and a rebound in investment-banking fees. Bank of America delivered a 23% profit increase with record net interest income, while Citigroup’s earnings rose 16% despite absorbing a large loss tied to its Banamex stake. Among regionals, Fifth Third Bancorp surprised positively with solid revenue growth and stable credit metrics, while U.S. Bancorp posted double-digit profit growth on stronger margins and cost control. Together, these results underscored the relative strength of large-cap financial institutions even as investors remained cautious about credit quality following the Tricolor and First Brands bankruptcies. Forward guidance remained a key focus as the government shutdown limited access to official macro data, pushing investors to rely on company disclosures to gauge trends in consumer health, lending, and credit conditions. Overall, early 3Q25 earnings have been stronger than feared, helping stabilize equity markets amid persistent macro and geopolitical uncertainty.
US GDP Growth Outlook Upgrade
On Monday, the National Association of Business Economics released its October 2025 outlook, which raised the US economy’s 2025 real GDP growth expectations from 1.3% in June to 1.8%. The upgrade largely reflects a surge in AI-related business investment, which pushed the projected growth rate for business investment from 1.6% in June to 3.8% now. Not all is rosy, however, as economists raised concerns about the sluggish labor market, with average job growth expected to be 60,000 for the year versus 87,000 a few months ago, and inflation continuing to be above the Fed’s inflation target all throughout next year. The worries moving forward into the next year are that any fractures in the AI narrative may hurt business investment and lead to a pullback on consumer spending. Real GDP growth for 2026 is expected to be 1.7% with drags on the economy being slow hiring and tariffs.
US Auto Loan Delinquencies Near 15-Year High
Until recently, U.S. auto loans were viewed as relatively safe credit products, because consumers tended to prioritize car payments to maintain household transportation and commute to work. However, since 2010 this segment has experienced more credit deterioration compared to others, such as credit cards and personal loans, where such a rise has not been seen. Delinquency rates for subprime borrowers hit an all-time high in January of this year at 6.45% and continue to remain high at 6.43% as of August, meanwhile prime borrowers continue to remain stable at 0.35%. High delinquency rates have been largely fueled by steep interest rates on auto loans, with many above 9 %, and record high vehicle prices. Kelley Blue Book reports that, for the first time ever, the average price of a new car has exceeded $50,000.
Sources:
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
https://www.bloomberg.com/news/articles/2025-10-14/powell-signals-another-cut-as-weak-hiring-pressures-unemployment?srnd=homepage-americas https://www.bloomberg.com/news/articles/2025-10-17/fifth-third-house-to-house-search-finds-just-two-bad-car-vins?srnd=homepage-americas
