Hope Springs Eternal

October 20, 2025

Financial Markets

Equity markets were roiled this past week as signs of regional bank stress and renewed trade tensions rattled investor confidence. Despite significant day-to-day volatility, the major equity market indices closed higher for the week.

One catalyst came Thursday, when reports of mounting credit stress at several regional banks—particularly Zions Bancorporation and Western Alliance—triggered a sharp sell-off. Analysts emphasized that the issues appear contained, but the headlines followed a steady drumbeat of news about ripple effects from the First Brands and Tricolor bankruptcies. JPMorgan CEO Jamie Dimon added to the unease by suggesting such developments could be “cockroaches,” implying the potential for additional problems yet to surface.

The latest trade flashpoint came from China, which announced new restrictions on the export of rare earth materials—resources where it remains the world’s dominant supplier. The move was widely interpreted as a strategic response to ongoing U.S. tariff policies and reignited concerns over a potential escalation in the trade conflict. Predictably, the U.S. responded with threats of retaliatory tariffs, adding another layer of uncertainty to global trade dynamics. However, President Trump tempered his stance on Friday, acknowledging that such measures would be “not sustainable” in the long-term. He added that he plans to meet President Xi in two weeks, a development that helped calm markets intraday and lifted sentiment heading into the weekend.

While investors have grown somewhat accustomed to such rhetoric, market breadth continues to narrow, with a small percentage of large-cap technology names driving overall index performance. Many of these companies are trading on elevated expectations for future earnings, heightening concerns about valuation risk.

With the third-quarter earnings season set to begin, investors will soon have a clearer picture of whether corporate profits can justify current price levels. Analysts are watching closely for guidance on profit margins, input costs, and global demand amid ongoing supply chain and tariff pressures. Earnings results over the next few weeks could determine whether markets regain footing or extend their recent volatility.

Economics

Economic signals remain mixed both domestically and abroad, continuing a pattern of uneven momentum. On the surface, the U.S. economy appears healthy—GDP growth remains positive, inflation has moderated, and the Federal Reserve has maintained a stable policy stance. However, beneath the surface, signs of strain are emerging.

Consumer spending—the traditional engine of U.S. growth—has shown early signs of fatigue. Wage growth has slowed modestly, while credit card balances continue to rise, suggesting that households are increasingly relying on debt to sustain consumption. Business investment outside of AI remains tepid, with many firms deferring capital expenditures until trade and fiscal policies become clearer.

More troubling is the apparent disconnect between headline GDP growth and employment trends. While output continues to expand, job creation has lagged, and labor force participation has edged lower. These discrepancies raise questions about the sustainability of current growth and whether productivity gains—largely attributed to advances in artificial intelligence and automation—are masking underlying labor market weakness.

The ongoing government shutdown is also beginning to weigh on data collection and reporting. Key indicators such as payrolls and jobless claims have been delayed, complicating the Federal Reserve’s task of assessing real-time economic conditions. Should the impasse persist, it could further cloud the outlook for both policymakers and investors. However, there will be at least some relief from the data blackout—the Bureau of Labor Statistics has confirmed that September’s CPI report will still be published on October 24^th to meet statutory cost-of-living adjustment requirements, even as other releases continue to slip.

Conclusion

While recent developments might read as bearish, our outlook remains measured rather than pessimistic. We continue to believe in the long-term promise of technological innovation and the new digital economy, even if markets occasionally get ahead of themselves. Periods of consolidation are natural and often healthy, allowing fundamentals to catch up with valuations.

Still, the current environment calls for vigilance. Concentrated market leadership, persistent geopolitical frictions, and domestic political dysfunction all argue for a disciplined approach.

I. Front End Disclosure

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Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all clients and each client should consider their ability to invest for the long term, especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

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II. Investment Analysis

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There is no guarantee that desired objectives will be achieved. 1919 has a reasonable belief that any third party information used for investment analyses purposes is reliable but does not represent to the complete accuracy of such information by any third party.

III. Portfolio Composition

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