Financial Markets Soar!

October 27, 2025

Financial Markets

U.S. equity markets continued their upward march last week, with major indices posting new all-time highs. Investor optimism was driven by growing expectations that the Federal Open Market Committee (FOMC) will continue easing interest rates in the coming months. A lower-than-expected Consumer Prince Index (CPI) print reinforced confidence that inflation pressures are easing, even as manufacturing and services PMIs surprised to the upside, signaling underlying economic resilience. While data disruptions continue due to the ongoing government shutdown, furloughed Bureau of Labor Statistics (BLS) staff were temporarily called back to compile the September CPI report, given its critical role in determining Social Security cost-of-living adjustments.

However, the rally has raised questions about sustainability. While equity benchmarks sit at record levels, the broader economy continues to show signs of uneven growth, and geopolitical risks remain widespread—from ongoing global conflicts to mounting fiscal strains.

Another factor worth noting: a narrow group of large-cap technology companies continues to drive the majority of U.S. market gains. This concentration risk underscores the importance of diversification, particularly as valuations climb further into premium territory.

Meanwhile, foreign markets are continuing to look more attractive to U.S. investors. Years of underperformance relative to the United States, coupled with improving earnings prospects abroad, have shifted sentiment. Additionally, some investors view President Trump’s unpredictable tariff and trade policies as a source of volatility—adding to the case for broader geographic exposure.

Economics

The U.S. economy remains fundamentally strong, even as growth becomes more uneven across sectors. Recent data suggest that AI-related investments are boosting corporate productivity and profitability, though some analysts caution that investors may be overestimating the pace of earnings acceleration. The integration of AI into corporate operations should continue to provide tailwinds for margins, but the broader economy still faces headwinds from relatively high borrowing costs and slowing consumer spending.

Internationally, much depends on the stability of U.S. trade policy. The administration’s on-again, off-again tariff announcements continue to create uncertainty in global supply chains and business planning. While tariffs have not yet produced major economic dislocations, their erratic use as a political tool risks undermining investor confidence. In a notable development over the weekend, U.S. Treasury Secretary Scott Bessent announced that the United States and China have agreed on a “framework” for a trade deal ahead of a planned meeting between President Trump and President Xi Jinping later this week. This move appears to temper imminent tariff threats and is pushing markets higher in early Monday trading.

Conclusion

Our conclusion this week remains largely consistent with prior editions: the U.S. economy is stable, but markets appear overly optimistic. Equity valuations are elevated, and the concentration of gains in a few large-cap names increases the risk of sharp corrections if AI sentiment shifts. That said, opportunities are emerging beyond U.S. borders. International equities, long overshadowed by the U.S. market’s strength, may be positioned for relative outperformance if domestic volatility rises or policy uncertainty persists.

A Personal Note

After 31 years at 1919 Investment Counsel, I will be retiring at the end of this week. It has been a tremendous honor to contribute to this publication and to share insights with clients and colleagues over the years.

I’ve been fortunate to work alongside a remarkable team—Debbie Davis, Ryan Schutte, Sean Hung, Abby McKenna, John Reilly, Pat Kalinowski, and countless others—whose support and collaboration have been invaluable.

I will be around through the end of the week and can be reached at moclark@1919ic.com. Thank you for the many years of engagement, trust, and conversation.

With gratitude,

Michael O. Clark

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