Welcome to the monthly market update from Midland Wealth Management. I’m Dan Zeigler, Senior Portfolio Manager. Today, I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.
Inflation Softens
September inflation came in below expectations, supporting the Fed’s October rate cut. Core CPI rose 0.2% for the month and 3.0% year-over-year—among the slowest increases this year. These results point to easing price pressures in the Services sector and softer consumer demand, giving the Fed confidence to loosen policy while remaining alert to risks from tariffs and global uncertainty.
Fed Policy
At its late-October meeting, the Federal Open Market Committee (FOMC) voted 10–2 to lower the federal funds rate by 25 basis points, to a new target range of 3.75%–4.00%. This marked the second rate cut of 2025 and the first meeting in six years with dissents in both directions—one member favoring a larger cut, while another preferred holding the target rate steady amid lingering inflation concerns.
Markets focused on Chair Jerome Powell’s comments, which downplayed expectations for another cut in December. The odds of a December move fell from about 90% to 67%, reflecting the Fed’s cautious stance and a federal government shutdown, which, at the time of this update, has entered its 34th day, preventing the release of timely economic data. The FOMC additionally announced its plan to end quantitative tightening (QT) on December 1st, wrapping up a three-year balance sheet reduction that has trimmed more than $2.3 trillion in assets. Ending QT should act to ease any residual upward pressure on short-term rates and support broader liquidity.
Corporate Earnings
About two-thirds of S&P 500 companies have thus far reported third quarter results, with 83% beating estimates. On average, earnings ran 5.3% above forecasts and grew 10.7% year-over-year, while revenues rose 7.9%, the fastest pace since Q3 2022. Information Technology, Financials, and Healthcare led growth, while Communication Services and Energy lagged.
Analysts expect continued momentum—projecting 7.6% earnings growth in the fourth quarter and 11% for full-year 2025. The forward 12-month P/E ratio of 22.9 remains above long-term averages, reflecting elevated but not equally distributed valuations alongside resilient profit trends.
Equity/Fixed Income
Despite political uncertainty around the government shutdown and renewed U.S.–China trade tensions, equity markets advanced in October. The S&P 500 rose 2.3%, supported by the Fed’s rate cut and broadly solid corporate earnings. Emerging markets gained 3.5%, aided by a weaker U.S. dollar and continued strength in Technology and AI-related sectors.
A few cracks appeared in credit markets as several corporate bankruptcies underscored pressure on lower-quality borrowers. While these events remain isolated, we’re monitoring conditions closely to ensure any stress doesn’t broaden. Our positioning continues to emphasize quality and liquidity, taking advantage of attractive yields while maintaining a defensive posture.
Treasuries rallied early in October, with the 10-year Treasury dropping below 4% mid-month, before giving back some of those gains after Chair Powell’s late-month remarks tempered hopes for another December cut. The 10-year ended near 4.10% and the 30-year Treasury around 4.65%, reflecting continued market sensitivity to prices and fiscal unease.
Outlook
Markets found support as U.S.–China trade talks made progress, with a new framework calling for partial tariff rollbacks and commitments from China on agricultural imports and fentanyl controls. These steps eased trade tensions and bolstered risk sentiment.
Meanwhile, labor market signals are mixed. Several large corporations have announced layoffs, hinting at slower hiring momentum, while the ongoing government shutdown has delayed key reports like the monthly jobs data, limiting short-term visibility. There is additional evidence of weakening in credit conditions in lower-income cohorts.
Amid these uncertainties, we remain focused on fundamentals and disciplined risk management—positioning portfolios to navigate volatility and capture opportunities as they arise.
Thanks again for joining me for this month’s update, and as always, please contact your advisor or relationship manager with any questions you may have.
