Weekly Investment Update (10/10/2025)

Investors have spent much of the year navigating a steady stream of macroeconomic and political noise — from shifting Fed commentary to trade and geopolitical tensions, and now a prolonged government shutdown that has paused the release of official economic data. In the absence of these reports, markets are looking for alternative signals to gauge the true state of the economy.

Importantly for our outlook, corporate earnings expectations continue to defy historical trends. Since July, the consensus estimate for third-quarter S&P 500 earnings growth has risen from +8.0% to +8.8%, a rare upward revision ahead of earnings season. This marks just the fifth time since 2003 that earnings estimates have improved in the lead-up to reporting, and previous instances often coincided with key positive inflection points in the business cycle.

In addition, the recently passed One Big Beautiful Bill Act (OBBBA) tax package is set to inject meaningful support into household balance sheets early next year. Strategas Research Partners estimates that roughly $91 billion in retroactive tax refunds will be distributed during the 2026 filing season, plus another $30 billion from lower ongoing withholding. This delayed but visible fiscal tailwind should provide a lift to consumption just as the Fed continues on its path of policy easing.

Shutdown Delays Data, but Economic Signals Remain Clear

What is happening: The federal government shutdown entered its second week, driven by ongoing congressional disputes over pandemic-era Affordable Care Act subsidies. As the shutdown continues, the closure of federal agencies has delayed the release of labor market data, including the September nonfarm payrolls report, and will postpone next week’s consumer price index report until October 24.

Despite the pause in official data releases, a range of alternative indicators remains available to help fill the gaps. While these measures can be more volatile, they still provide a reasonable gauge of overall economic conditions. Last week’s ADP employment report indicated a further slowdown in job growth, though advance layoff notices tracked by the Cleveland Fed recently fell to their lowest level since 2022, reflecting a labor market with softer hiring but still limited layoffs. On the inflation front, the New York Fed’s one-year-ahead consumer inflation expectations rose to 3.4% in September from 3.2% in August. However, longer-term market-based inflation expectations remain well anchored, with the 10-year break-even rate — the average inflation rate expected over the next decade — holding steady at 2.3%.

Why it matters: Even with delays in government reporting, sufficient data remain available to assess the broader economic backdrop. Private sector data, regional Federal Reserve surveys, and market-based indicators continue to provide insight into hiring trends, inflation, and consumer activity. While often more volatile, these sources offer a timely view of underlying economic momentum.

We continue to expect an agreement this month to reopen the federal government, restoring the regular flow of economic data and reducing uncertainty over the near-term outlook. In the meantime, the availability of alternative indicators provides useful visibility into key trends. With these measures still pointing to a gradual cooling in the labor market and stable long-term inflation expectations, the broader economic picture remains intact, allowing policymakers to stay reasonably well informed. Given this backdrop, we expect the Federal Reserve to continue easing its policy rate at the October 29 meeting to preempt further weakening in labor market conditions.

Sanae Takaichi Wins LDP Election, but Needs to Clear New Hurdles to Become Japan’s First Female Prime Minister

What is happening: On Saturday, Sanae Takaichi was elected the next president of Japan’s Liberal Democratic Party. After the election, there will be an extraordinary session of the national legislature on October 15 to choose the next prime minister. Given that the LDP holds the most seats in the largest coalition, Takaichi’s path to become Japan’s next prime minister had appeared to be relatively smooth. That changed on Friday when the Komeito party, a long-standing ally of the LDP, refused to support Takaichi due to disagreement over a political funding scandal. Takaichi is still favored to win the premiership with a 72% probability according to political betting website Polymarket, but that is down from 99% immediately following Saturday’s election. Overall, the Japanese stock markets have responded favorably to the election results, with the Nikkei and Topix up 5% and 2%, respectively. Concurrently, the Japanese yen depreciated more than 3% and surpassed 150 USD/JPY.

Why it matters: With the election of Sanae Takaichi to LDP president, there is renewed investor optimism around a reflationary policy regime. Takaichi is widely seen as a disciple of former Prime Minister Shinzo Abe and his “Abenomics” playbook, which includes fiscal stimulus, monetary easing, and tax cuts. However, with ever increasing national debt and inflation at decade highs, Takaichi may not have as many policy tools as Abe did in 2013. As a result, it’s unlikely that large-scale fiscal expansionary policies will be implemented immediately. A more gradual rollout of stimulus initiatives seems more probable at this time. 

In terms of opportunities, a Japanese government actively committed to growth and stimulus could enhance corporate earnings, particularly in capital investment, infrastructure, and sectors sensitive to cyclical demand. Industries such as AI, semiconductors, advanced medicine, and defense have been included in Takaichi’s pro-investment agenda. She has also advocated for an expansion of nuclear power, including the development of both next-generation fission reactors and nuclear fusion.

On the other hand, further expansion risks debt market stress or credit concerns if investors perceive an erosion in fiscal discipline. For example, Japanese 10-year bond yields have already moved higher after Saturday’s election. Moreover, investor risk appetite will still be influenced by external factors such as global demand and ongoing trade negotiations with the U.S. Finally, it’s important to note that the LDP’s political power is much weaker today than during Abe’s second term, when the party dominated elections with an overwhelming majority.  While the LDP currently has the most seats in the national legislature, Friday’s disagreement with Komeito highlights the fragility of its political alliances. If Takaichi eventually gets enough votes to win the premiership, the new ruling coalition will still likely be weaker than the few recent ones, increasing the risk for political gridlock. While the markets have reacted positively so far, whether the rally can be sustained will depend on both domestic policy execution and broader international economic stability.

Bessemer’s equity portfolios have gradually increased their exposure to Japan throughout this year, moving from a slight underweight to now a slight overweight due to the improving economic environment. Overall, our portfolios have focused on companies with long-term structural growth themes, particularly in the industrial and information technology sectors.