Weekly Investment Update (10/17/2025)

Markets navigated a volatile week as concerns about credit risk resurfaced following negative headlines around regional bank exposures and corporate bankruptcies. While the selloff on Thursday sparked a flurry of debate, many analysts downplayed the broader implications, viewing the moves as sentiment-driven rather than systemic. Moody’s added some perspective by noting a 5.6% year-over-year decline in corporate refinancing needs, signaling that default risks remain manageable for now. That said, market sensitivity to credit developments remains elevated, particularly amid ongoing political gridlock tied to the government shutdown and renewed U.S.-China trade tensions.

On the fundamental side, investor attention remains firmly anchored to the AI capex cycle and Q3 earnings. TSMC delivered strong results and raised forward guidance again, citing strengthening conviction in AI demand and operational efficiency gains. Oracle, Broadcom, AMD, and others also helped reinforce optimism around the durability of the AI infrastructure buildout. Overall, corporate profits continue to grow, with the breadth of revisions skewed positive — 60% of U.S. estimate revisions have been higher. It is difficult to be too negative on the economic growth outlook when earnings growth is strong.

Large-Cap Banks Post Strong 3Q Results

What is happening: Wall Street investment banking firms reported better-than-expected 3Q earnings results. Strong and broad performance in trading, corporate lending, equity underwriting, and mergers and acquisitions led to record revenues for many firms. The six largest banks booked $41 billion in profits in 3Q 2025, a 19% year-over-year increase. JP Morgan reported a 12% increase in earnings with investment banking revenue rising 16%. Similarly, Citigroup reported a 16% gain in third-quarter profits as revenue increased 9% to $21 billion and net interest income jumped 12%. Bank of America, the second-largest U.S. bank by assets, saw profits rise 23% as revenue increased almost 11%. The week wrapped up with regional banks — Truist, Comerica, Fifth Third, Huntington — reporting better than expected results. 

At the other end of the spectrum, several headline-grabbing stories regarding bankruptcy and fraud allegations led to double-digit losses this week in the share prices of Zions, Western Alliance, and Jefferies. On Thursday, the regional banks index declined more than 6% and the broader KBW Nasdaq Bank Index was off almost 4%, their worst daily decline since April. The recent bankruptcies of First Brands (an auto parts supplier) and TriColor (a subprime auto lender and used-car dealership serving borrowers with little or no credit history) have raised concerns about underwriting standards and broader credit risks at small- and mid-cap banks.

Why it matters: Consensus forecasts for earnings growth for S&P 500 financials for 3Q were 7% on June 30, 2025, and about 11% at end of September. Actual 3Q growth now appears likely to exceed 13%. On the quarterly earnings calls, executives from the big banks have highlighted a full pipeline of deal flow, a favorable environment for mergers and acquisitions, and massive AI capital spending as some of the catalysts driving performance. Commentary from Goldman Sachs captures the positive sentiment as CEO David Solomon stated that “we’re in an environment where CEOs think that the opportunity to get things done strategically is possible.” JP Morgan CFO Jeremy Barnum commented that “conditions have been kind of as good as you can hope for.”

Results from Wall Street’s biggest banks are demonstrating that major corporations and core banking customers appear to be in favorable positions. Labor markets haven’t rolled over, and consumers are spending, even as those in lower income brackets face increasing pressures relative to those in the top deciles. The Fed easing cycle, which started in mid-September, is expected to continue and could provide further support for the equity and fixed income markets. A resolution to the government shutdown and continued progress on tariff deals could provide additional support. However, the loan portfolios and risk controls of regional banks, which are more leveraged to main street than Wall Street will be greatly scrutinized as investors look to handicap whether or not recent defaults are a harbinger of more to come.

Bessemer portfolios are overweight banks such as JP Morgan and Bank of America, reflecting our conviction in the resilience of the U.S. economy and view that more rate cuts lie ahead. Future cuts should provide support for the financial sector by steepening the yield curve, boosting loan demand, and alleviating credit pressures. Bessemer equity portfolios are underweight regional banks and have no direct exposure to Zions, Jefferies, and Western Alliance Bancorp.

U.S.-China Trade Talks Shift from Escalation to Engagement

What is happening: U.S.-China trade tensions escalated after China imposed new export controls on rare earth minerals, prompting President Trump to announce a sweeping 100% tariff on all Chinese imports. Simultaneously, the Trump administration introduced plans for expanded restrictions on certain sensitive technology exports to China, framing the actions as measures to protect critical supply chains.

Although the escalation initially caused volatility across global markets due to renewed concerns over U.S.-China trade tensions, this week’s shift in tone from U.S. officials helped ease market sentiment. While critical of China’s actions, Treasury Secretary Scott Bessent emphasized that communication is ongoing, expressing optimism about resolving tensions through negotiations. Plans for a meeting between President Trump and President Xi Jinping in South Korea later this month have also added to the more constructive tone, supporting a steadier outlook for trade.

Why it matters: While headline risks around tariffs may continue to generate short-term volatility, the broader economic backdrop remains constructive, and continued U.S.-China de-escalation supports that path. We continue to anticipate that ongoing negotiations between the U.S. and China will lead to productive agreements, ultimately fostering cooperation between the two largest global economies. While we expect final tariff rates to remain elevated relative to last year, the direction and tone of recent rhetoric suggests a manageable final outcome.

At the same time, further clarity around final tariff rates will provide a better sense of certainty for both markets and the Federal Reserve. As discussions are ongoing, a more solidified trade framework will help guide monetary policy decisions, especially as the Fed balances inflation risks with labor market concerns. Despite the brief trade tensions, we believe the Fed’s focus remains on labor market dynamics. Tariff-related price pressures have so far been modest, while signs of labor market softening are more evident even as the government shutdown delays data releases, suggesting prioritization of employment stability over inflation concerns in the near term.