Market Insights Recap — Week of October 6, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank.

Vacations, balancing act and the rearview mirror. What do they mean for our portfolios? What should we be doing and thinking about? 

Well, let's start with the economy as usual. No jobs report for September. Government shutdown. BLS employees. Paid vacation. Shutdowns average about eight days, but if the Senate is able to vote on some compromise, continuing resolution, it'll have to be sent back to the House for a vote. And the House is not in session this week. And the silver lining, of course, with Congress having their own vacations is they can't spend more of our tax dollars. 

Private sources such as Paychex and Indeed.com suggest employment is holding steady. Challenger layoff announcements, they're the lowest since January. No layoffs, but not much hiring either. So roughly in balance. 

Services surveys show slow but steady expansion. Manufacturing surveys at least have stopped getting worse. But there are stresses out there, specifically in private credit, in the leveraged loans, Tricolor and First Brands bankruptcies could weigh on spreads a bit. 

We think the Fed also sees the job market in balance. They'll have to weigh later job release information against six weeks of low layoff data before their October 29 policy vote. We think a first-gear improving economy may make the Fed think twice about more cuts. Regardless, a recession is not in the near-term future, and we can stay invested. I often talk about the Fed driving short-term rates while looking at old data, driving using the rearview mirror, so to speak. Never a good idea, but at quarter end, it's always a good idea to see where you've been. The third quarter is usually the weakest for stocks, but this third quarter punched an 8% return for the S&P 500, a year-to-date return of 14%. That's comfortably above our 9% to 10% early estimate. 

What does the stock market ledger look like to start the fourth quarter? Now on the plus side of the ledger, long-term bull is still in place. Several years left to run. AI, an amazing capex boom helping construction and manufacturing. Margins are at an all-time high around 13%. Customers, they're feeling pinched here and there, but they're still spending. Leverage or corporate borrowing is very low. Don't fight the Fed; they're in rate cut mode, and IPOs are coming out of hibernation. On the other side, the Wall Street Wall of Worry. Stocks are a bit overbought, valuations are rich. The AI frenzy does look long in the tooth. Meta is unchanged since February. Amazon and Apple, unchanged this year. That's three of the Mag Seven. Tariff levels, still up in the air. Not quite as bad as April, but inflation is sticky and grinding higher. The fourth quarter is usually the strongest of the year, regardless of what market conditions were for the first three quarters. Hey, let's have some more winning. And next week we're going to preview earnings season for third quarter earnings.

So let's wrap it up. After a strong September, October sees some consolidation for stocks but still a good fourth quarter ahead. Rates aren't moving much; waiting on the Fed at the end of the month. The Fed, however, is waiting on Congress to pass a spending resolution to reopen government so they can get the jobs data. All of our indicators are green, so stay invested; 'til next time.