Earnings Shine as Government Shutdown Clouds the Dashboard
Commentary:
Intro
October closed with investors squinting through an information blackout. A record-long federal government shutdown has halted many official releases, blurring the near-term economic picture. While private indicators still trickle in, we believe the safest course is to drive more slowly in the fog for now. At the same time, resilient corporate profits and the prospect of pro-growth fiscal policy continue to light the road ahead. Balancing these crosscurrents, we modestly reduced equity risk and extended bond duration during the month.
Market Recap
U.S. large caps shrugged off the shutdown headlines: the S&P 500 advanced 2.38% in October. Mega-cap technology led after another quarter of blockbuster results, lifting the Nasdaq 100 up 4.78%. Small-caps were more subdued; the Russell 2000 gaining 1.76% as higher funding costs still weigh on many balance sheets. Overseas developed markets followed U.S. leadership, while emerging-market returns diverged on a stronger US Dollar.
Fixed income finally provided ballast. Ten-year Treasury yields fell roughly 20 basis points as the Federal Reserve executed its second consecutive 25bps cut on October 29, lowering the funds rate to a 3.75 – 4% range. The move, together with a commitment to end balance-sheet runoff in December, helped the Bloomberg U.S. Aggregate Bond Index eke out a modest monthly gain of 0.62%.
Economic Backdrop
Hard data is scarce. Official inflation, employment, and retail-sales releases are on hiatus, a point underscored by Chicago Fed President Austan Goolsbee, who likened policymaking to “driving in the fog” without reliable gauges. The most recent reading we do have, the Bureau of Economic Analysis’ August core PCE price index at 2.9% year-over-year, shows price pressures slowly easing but still above the Fed’s 2% goal. [1]
Corporate America is faring better. With 91% of S&P 500 constituents reporting, 82% beat earnings-per-share estimates and 77% topped revenue forecasts for Q3 2025. Blended EPS growth stands at 13.1%, the fourth straight quarter of double-digit expansion. [2] The profit resilience of mega-cap firms, from cloud services to AI chips, continues to anchor our growth outlook.
Conclusion:
Our regime models still signal Quad 1, accelerating growth alongside slowing inflation, for 1Q 2026, supported by strong corporate earnings and the dual fiscal boost of tax relief and higher federal outlays. Yet the shutdown muddies the near-term picture: delayed November–December jobs data and USDA guidance that SNAP benefits may be partially funded and slow to reach recipients could temper lower-income spending. Together, these uncertainties argue for a measured risk posture until cleaner data confirm the outlook. [3]
As we look ahead, we believe the medium-term setup remains constructive. Profits are rising, policy is easing, and fiscal stimulus, both from tax cuts and heavier defense procurement, should boost real GDP over the next 12 months. Still, opaque data, the risk of prolonged benefit shortfalls, and the possibility that rate cuts stall if inflation flares again argue for patience. We will look to rebuild equity exposure once official releases resume and labor-market noise clears, likely in December. Until then, our stance is best described as “offense in the huddle, defense at the line of scrimmage.”
Sources
1. Fed's Goolsbee warns of impact a shutdown could have on economic data releases | Fox Business
2. EarningsInsight_110725B.pdf
3. US employment report will not be published again as government shutdown drags on | Reuters
Model Performance Update
Our Moderate Model Portfolio returned 0.9% in October and has returned 12.67% YTD
Changes to the model portfolio in October
10/14/2025
- Removed EWW (Mexico), GVAL (Global Value), and XLE (Energy) from Satellite 1
- Increased Exposure to PINK (Healthcare), QQQ (Tech), EWA (Australia), and XLI (Industrials) in Satellite 1
- Removed BNO (Brent Crude) from Satellite 3
10/23/2025
- Added CPER (Copper) to Satellite 3
10/24/2025
- Swapped XTWO (2 Year Treasury) with TLT (20+ year Treasury) within Satellite 2
10/29/2025
- Reduced AAAU (Gold) and SIVR (Silver) in Satellite 3
- Removed INFL (Inflation Beneficiaries) and XLF (Financials) in Satellite 1
- Moved 200bps of cash from Satellite 1 to Satellite 3
- Initiated position in UUP (US Dollar) in Satellite 3
October Performance with Benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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