Weekly Investment Update (10/24/2025)

Stock markets logged a modestly positive week despite ongoing trade tensions and the continuing federal government shutdown. The shutdown has delayed many key economic data releases, but the CPI report was released this Friday because it is required for the Social Security Administration to calculate cost of living adjustments (COLA). With both headline and core CPI inflation falling below estimates, it appears increasingly likely that the Federal Reserve will continue reducing policy rates at its meeting next week. Overall, the macroeconomic environment remains constructive, supported by the combination of Fed easing, solid earnings growth, and resilient consumer spending.

On the geopolitical front, crude oil prices rebounded above $60 per barrel after the U.S. and EU imposed new sanctions on large Russian oil companies Rosneft and Lukoil. Concurrently, India is nearing a deal with the U.S. to gradually reduce Russian oil imports. U.S.-China trade tensions also continue to contribute to market volatility, and while the White House has confirmed that Presidents Trump and Xi will meet in South Korea next week, many issues remain unresolved. Chief among them are tariffs, restrictions on rare earth and semiconductor exports, and China’s noncompliance with prior trade agreements.

Reports of corporate earnings this week delivered mixed signals, with share-price reactions increasingly tied to future business outlooks rather than current EPS beats or misses. These developments underscore how markets are now more focused on forward-looking growth narratives — especially among large-cap technology stocks. Even with earnings season reports off to a mixed start, EPS expectations have trended higher, and monetary policy support is likely to encourage positive overall performance in the near term.

Core Inflation Cools Modestly as Shelter Costs Ease

What is happening: Both headline and core CPI readings for September came in slightly below expectations. Headline CPI rose 0.3% month-over-month, lifting the annual inflation rate to 3.0% from 2.9%. Core CPI rose 0.2%, bringing the annual core rate down to 3.0% from 3.1%.

The modest downside surprise in core inflation was driven by softer shelter costs. Owners’ equivalent rent (OER) rose at the slowest pace since December 2020, while rent of primary residences increased only modestly. Core goods inflation continued to reflect tariff pass-through, as apparel prices rose 0.7% and new vehicle prices increased 0.2%. These gains were partly offset by price declines in used vehicles and medical goods. Energy was the main contributor to the headline increase, with gasoline prices rising 4.1%, largely due to seasonal adjustment factors rather than actual price movements at the pump.

Why it matters: The September CPI print showed that underlying price pressures remain contained despite ongoing tariff effects. Softer shelter inflation and easing in several services categories offer further evidence that disinflationary progress is intact. The initial market reaction was dovish, with U.S. Treasury yields falling, the dollar weakening, and equities rising.

The market is now pricing 50 basis points of cuts by year-end, consistent with the view that inflation is trending lower without slowing growth. With the Fed’s focus now shifting to the labor market, this print supports our expectation for 25-basis-point rate cuts at both the October and December meetings, alongside a possible early end to quantitative tightening. That said, some uncertainty remains around the upcoming October CPI release. The ongoing government shutdown appears to be disrupting data collection, and the White House recently announced that inflation data may not be released next month. 

From a portfolio perspective, the combination of moderating inflation and a more accommodative Fed policy path supports maintaining a longer duration position in fixed income portfolios.

Investors More Discerning as Third-Quarter Earnings Results Come In

What is happening: Equity market gains this quarter continue to show bifurcation alongside a modest shift of several themes that have defined recent market performance. Quarter-to-date in individual S&P 500 sectors, healthcare (+4.9%), utilities (+3.5%), and consumer staples (+1.7%) are leading, while financial services (-2.5%) and materials (-0.87%) are lagging. Investors in the markets’ high-quality, top-performing mega-cap names could be pausing as they await third-quarter earnings results, including next week’s reports from five of the Magnificent Seven companies.

Meanwhile, speculative areas are experiencing renewed attention. Beyond Meat surged 1,000% this week before paring gains, and unprofitable, pre-revenue nuclear and quantum computing stocks have also gained momentum. Quantum computing companies D-Wave Quantum and Rigetti Computing saw double-digit gains after reports emerged that several companies in the space are in talks with the Commerce Department about equity stakes in exchange for federal funding. 

Small-cap and international stock indices are continuing to outperform. Quarter-to-date, the MSCI All Country World ex-US index (+1.6%) has outpaced the S&P 500 (+0.8%). The Russell 2000 and Russell Microcap indices are up 1.9% and 4.0%, respectively, versus a 0.8% gain for the Russell 1000.

Why it matters: This week’s market reactions to earnings reports from companies such as Tesla, Netflix, and Intel highlight that investors are growing more discerning — particularly when it comes to companies making large investments in AI and innovation. Investors are increasingly seeking clear evidence that these investments will boost productivity and generate attractive long-term returns.

At the same time, short-term moves in low-quality stocks are being driven by speculative momentum. Unprofitable companies in the Russell 2000 are outperforming profitable ones by 33% year-to-date, reflecting a rally fueled by sentiment and risk-taking rather than by fundamentals. At Bessemer, we remain focused on identifying companies with structural advantages, attractive risk-reward characteristics, and the ability to consistently compound long-term earnings. Bessemer portfolio managers seek to participate in AI and technology themes selectively, while maintaining valuation discipline.