Executive Summary
Investors are gearing up for a pivotal week, as Big Tech earnings and an expected U.S. interest rate cut could set the country’s economic trajectory for the rest of the year. A cooler than expected inflation report on Friday sent stocks to fresh highs as traders bet the Federal Reserve will trim the cost of borrowing on Wednesday. But some analysts warn the market is particularly fragile and increasingly reliant on spending on AI capex. Third quarter earnings reports and guidance on Wednesday and Thursday from Microsoft, Alphabet, Meta, Amazon, and Apple — which together account for a quarter of the S&P 500 — will provide new information that may be more impactful than this week’s Fed meeting.
Yields on one- and three-year U.S. Treasuries ended the week higher, whereas 10-year yields declined. (Bond prices and yields move in opposite directions.) Municipal bonds showed strong performance last week, aided by strong cash flow and healthy demand for new issuance among a limited supply. Municipal bonds have demonstrated notable outperformance relative to taxable fixed income since the rate rallies in September. From August 31st to October 17th, the Bloomberg IG Muni Index returned 3.34%, compared to 2.12% for the U.S. Aggregate Index and 1.86% for Treasuries, outperforming by 122 and 148 bps, respectively. This outperformance was particularly pronounced in the long end of the muni curve, which has flattened.
The Investment Office believes there are still notable risks. Trade tensions could escalate without a subsequent de-escalation, and the drag from tariffs on growth could still materialize. Labor market softness may actually be a precursor to outright weakness, and not just temporary. Finally, any event that calls into question the investment return on AI capex could cascade into a significant market pullback given current valuations.
However, we believe despite the increased concern about left-tail risks, markets will continue to climb the wall of worry with increased volatility over the next several months. Even if a bubble is forming, it’s unlikely to end while the Fed is cutting rates, oil prices remain contained, and company earnings fundamentals are growing high single digit to low double digits year over year. Finally, the onus is on growth to reduce the deficit. We believe that if nominal GDP growth is equivalent or faster than the growth in the deficit then the markets will continue to kick the can regarding that debt sustainability concerns.
An early reading of the U.S. purchasing managers’ indexes (PMIs) compiled by S&P Global suggested that business activity strengthened in October. The composite PMI, which includes manufacturing and services, increased to 54.8 from 53.9 in September, marking the 33rd consecutive monthly reading above 50—the level that indicates an expansion in output. Once again, the service sector was an area of strength, with the latest PMI reading notching a three-month high of 55.2. Manufacturing PMI also rose to 52.2 from 52.0, signaling an improvement in business conditions.
Eurozone purchasing managers’ surveys showed business activity hit a 17-month high in October, supported by the strongest increase in new orders in two-and-a-half years. S&P Global reported that, according to provisional seasonally adjusted data, its HCOB Flash Eurozone Composite PMI Output Index reading was 52.2, up from 51.2 in September and ahead of consensus estimates. The services PMI climbed to a 14-month high of 52.6, while the gauge for manufacturing rose for an eighth month running, to 50.0 from 49.8.
Japan’s stock markets rose sharply over the week, with the Nikkei 225 Index gaining 3.6% and the broader TOPIX Index up 3.1%. Markets welcomed the election of the Liberal Democratic Party’s (LDP) Sanae Takaichi as Japan’s new prime minister, as her focus on the economy and proactive fiscal policy is likely to be positive for stock prices.
China retail sales grew 3.0% year over year (YoY) in September, the slowest pace since November, while fixed asset investment unexpectedly fell 0.5% YoY in the first nine months of the year. Industrial output rose a better-than-expected 6.5% YoY in September, driven by the booming export sector. Taken together, the data underscored the weak domestic demand that continues to hobble China’s economy.
Equities
The S&P 500 returned 1.9% for the week amid a strong start to the corporate earnings season, hopes of reducing trade tensions between the U.S. and China, and a better-than-expected inflation report, which boosted markets hopes that the Fed can continue to cut interest rates. Small caps continued their rally with the Russell 2000 index returning 2.5%. Consumer staples (-0.5%) and utilities (-0.2%) were the only sectors in the S&P 500 with negative returns; technology (+2.7%) and energy (+2.4%) were the leaders. EAFE markets returned +1.3% with gains in the U.K. (+3.1%) and Japan (+1.5%), while EM markets returned 2.0% with China (+4.0%) and Korea (+3.7%) leading.
From a valuation perspective, the S&P 500, the NASDAQ and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +2.2, the NASDAQ at +1.8 and EM at +1.7. For the next 12 months, EPS growth for S&P 500 is expected to be 8.9% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.6% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had positive returns as rates were largely unchanged across the curve. Municipals returned +0.3%, US AGG returned +0.2% and US IG returned +0.3%. HY bonds returned +0.4% as the spread compressed 12bps while bank loans returned +0.2%. EM debt returned +0.6% as the U.S. dollar rose 0.5% and spreads compressed 6bps.
Rates
Rates were largely unchanged across the curve; the benign inflation report cemented the market’s expectations of a rate cut for later this week. The recession-watch 3M-10Y spread widened 6bps to +14. The 2Y-10Y spread compressed 3bps to +51. Rates rose slightly in other developed markets other than the U.K. The BTP-Bund spread is at 0.79%. 5-year breakeven inflation expectations rose 7bps to 2.40% (vs. low of 1.88% on Sept 10, 2024); 10-year breakeven inflation expectations rose 3bps to 2.30% (vs. recent low of 2.03% on Sept 10, 2024); the 10Y real yield fell 3bps to 1.70%. The market now expects two further cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.62% vs. the Fed’s guidance of 3.5%-3.75%.
Currencies/Commodities
The dollar index rose 0.5%. The commodities complex rose 3.7% as energy prices rose 7.8% for the week. Brent prices rose 7.6% to $66/bbl as the U.S. placed additional sanctions on Russian producers; US natural gas prices rose 9.8% amid weather fluctuations and European gas rose 0.2%.
Market monitors
Volatility fell for equities and for bonds (VIX = 16, MOVE = 69); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (at midweek) rose from -12 to -6, indicating investors still remain cautious.
Weekly Commentary
Investment Commentary – October 27, 2025
Stuart Katz
Executive Summary
Investors are gearing up for a pivotal week, as Big Tech earnings and an expected U.S. interest rate cut could set the country’s economic trajectory for the rest of the year. A cooler than expected inflation report on Friday sent stocks to fresh highs as traders bet the Federal Reserve will trim the cost of borrowing on Wednesday. But some analysts warn the market is particularly fragile and increasingly reliant on spending on AI capex. Third quarter earnings reports and guidance on Wednesday and Thursday from Microsoft, Alphabet, Meta, Amazon, and Apple — which together account for a quarter of the S&P 500 — will provide new information that may be more impactful than this week’s Fed meeting.
Yields on one- and three-year U.S. Treasuries ended the week higher, whereas 10-year yields declined. (Bond prices and yields move in opposite directions.) Municipal bonds showed strong performance last week, aided by strong cash flow and healthy demand for new issuance among a limited supply. Municipal bonds have demonstrated notable outperformance relative to taxable fixed income since the rate rallies in September. From August 31st to October 17th, the Bloomberg IG Muni Index returned 3.34%, compared to 2.12% for the U.S. Aggregate Index and 1.86% for Treasuries, outperforming by 122 and 148 bps, respectively. This outperformance was particularly pronounced in the long end of the muni curve, which has flattened.
The Investment Office believes there are still notable risks. Trade tensions could escalate without a subsequent de-escalation, and the drag from tariffs on growth could still materialize. Labor market softness may actually be a precursor to outright weakness, and not just temporary. Finally, any event that calls into question the investment return on AI capex could cascade into a significant market pullback given current valuations.
However, we believe despite the increased concern about left-tail risks, markets will continue to climb the wall of worry with increased volatility over the next several months. Even if a bubble is forming, it’s unlikely to end while the Fed is cutting rates, oil prices remain contained, and company earnings fundamentals are growing high single digit to low double digits year over year. Finally, the onus is on growth to reduce the deficit. We believe that if nominal GDP growth is equivalent or faster than the growth in the deficit then the markets will continue to kick the can regarding that debt sustainability concerns.
An early reading of the U.S. purchasing managers’ indexes (PMIs) compiled by S&P Global suggested that business activity strengthened in October. The composite PMI, which includes manufacturing and services, increased to 54.8 from 53.9 in September, marking the 33rd consecutive monthly reading above 50—the level that indicates an expansion in output. Once again, the service sector was an area of strength, with the latest PMI reading notching a three-month high of 55.2. Manufacturing PMI also rose to 52.2 from 52.0, signaling an improvement in business conditions.
Eurozone purchasing managers’ surveys showed business activity hit a 17-month high in October, supported by the strongest increase in new orders in two-and-a-half years. S&P Global reported that, according to provisional seasonally adjusted data, its HCOB Flash Eurozone Composite PMI Output Index reading was 52.2, up from 51.2 in September and ahead of consensus estimates. The services PMI climbed to a 14-month high of 52.6, while the gauge for manufacturing rose for an eighth month running, to 50.0 from 49.8.
Japan’s stock markets rose sharply over the week, with the Nikkei 225 Index gaining 3.6% and the broader TOPIX Index up 3.1%. Markets welcomed the election of the Liberal Democratic Party’s (LDP) Sanae Takaichi as Japan’s new prime minister, as her focus on the economy and proactive fiscal policy is likely to be positive for stock prices.
China retail sales grew 3.0% year over year (YoY) in September, the slowest pace since November, while fixed asset investment unexpectedly fell 0.5% YoY in the first nine months of the year. Industrial output rose a better-than-expected 6.5% YoY in September, driven by the booming export sector. Taken together, the data underscored the weak domestic demand that continues to hobble China’s economy.
Equities
The S&P 500 returned 1.9% for the week amid a strong start to the corporate earnings season, hopes of reducing trade tensions between the U.S. and China, and a better-than-expected inflation report, which boosted markets hopes that the Fed can continue to cut interest rates. Small caps continued their rally with the Russell 2000 index returning 2.5%. Consumer staples (-0.5%) and utilities (-0.2%) were the only sectors in the S&P 500 with negative returns; technology (+2.7%) and energy (+2.4%) were the leaders. EAFE markets returned +1.3% with gains in the U.K. (+3.1%) and Japan (+1.5%), while EM markets returned 2.0% with China (+4.0%) and Korea (+3.7%) leading.
From a valuation perspective, the S&P 500, the NASDAQ and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +2.2, the NASDAQ at +1.8 and EM at +1.7. For the next 12 months, EPS growth for S&P 500 is expected to be 8.9% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.6% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had positive returns as rates were largely unchanged across the curve. Municipals returned +0.3%, US AGG returned +0.2% and US IG returned +0.3%. HY bonds returned +0.4% as the spread compressed 12bps while bank loans returned +0.2%. EM debt returned +0.6% as the U.S. dollar rose 0.5% and spreads compressed 6bps.
Rates
Rates were largely unchanged across the curve; the benign inflation report cemented the market’s expectations of a rate cut for later this week. The recession-watch 3M-10Y spread widened 6bps to +14. The 2Y-10Y spread compressed 3bps to +51. Rates rose slightly in other developed markets other than the U.K. The BTP-Bund spread is at 0.79%. 5-year breakeven inflation expectations rose 7bps to 2.40% (vs. low of 1.88% on Sept 10, 2024); 10-year breakeven inflation expectations rose 3bps to 2.30% (vs. recent low of 2.03% on Sept 10, 2024); the 10Y real yield fell 3bps to 1.70%. The market now expects two further cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.62% vs. the Fed’s guidance of 3.5%-3.75%.
Currencies/Commodities
The dollar index rose 0.5%. The commodities complex rose 3.7% as energy prices rose 7.8% for the week. Brent prices rose 7.6% to $66/bbl as the U.S. placed additional sanctions on Russian producers; US natural gas prices rose 9.8% amid weather fluctuations and European gas rose 0.2%.
Market monitors
Volatility fell for equities and for bonds (VIX = 16, MOVE = 69); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (at midweek) rose from -12 to -6, indicating investors still remain cautious.
Disclosure and Source
Investment Commentary Sources: Bloomberg. Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2704
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