We employ two distinctive dynamic market exposure models in our strategies: one tailored for growth-focused investors seeking aggressive opportunities and another designed for those with a more defensive approach, prioritizing capital preservation. *For illustrative purposes only.
The US equity market continued to climb in October, with the S&P 500 up 2.3%, the Dow rising 2.6%, and the tech-heavy Nasdaq outperforming with an advance of 4.7%. The rally was driven by robust earnings from tech companies, the Fed’s policy rate cut, and optimism around AI investments. Corporate earnings remained resilient , with 64% of S&P 500 companies reporting actual results, and 83% of them beating EPS estimates. As widely anticipated, the Fed cut the federal funds rate by another 0.25% to the range of 3.75% to 4% during its October meeting, citing growing downside risks to a weakening labor market. We expect the labor market to remain cool with a “no-hiring, no-firing” status quo. The September CPI report and the signs of rising jobless claims support this expectation and strengthen the Fed’s case for continuing its easing path. Looking ahead, we continue to see downward risks in the near term, including crowded risk asset positions, stretched valuations, and macroeconomic and trade policy uncertainties. On the other hand, easing Fed policy, decent earnings growth and solid business spending are all expected to bolster the medium-term outlook. With this backdrop, we are cautiously optimistic about the US equity market and have maintained the equity exposure at 70% in our defensive, tailored approach.
Fed Policy: As widely anticipated, the Fed cut the federal funds rate by another 0.25% to the range of 3.75% to 4% during its October meeting, citing growing downside risks to a weakening labor market. The FOMC expects tariff-related inflation to be temporary and sees the risks of persistent inflation given the softening labor market and anchored inflation expectations. However, Chair Powell indicated that it’s not guaranteed the Fed will cut rates again in December. Key economic data has been missing due to the government shutdown, partially explaining the wider differences in policy views within the FOMC committee, with one dissent favoring a 50-bps cut and another voting for no rate change. Markets viewed Powell’s tone as slightly hawkish, with equities falling modestly after the announcement. Our baseline expectation is that the Fed will cut the rate again by 25bps in its December meeting and gradually ease in 2026 until the fed funds rate is near its neutral level.
Government Shutdown: The US government shutdown began at the beginning of the month and has become the second-longest in history. It was triggered by partisan gridlock on budget issues, especially on health care tax credits and SNAP food assistance programs. The shutdown has resulted in the furlough of nearly 650,000 federal employees and halted payments of essential benefits such as November's SNAP benefits. It is estimated that the fourth-quarter growth could be reduced by 2%. The direct impact on the equity market from the government shutdown, however, has been very modest and short-lived, with major US equity indices remaining resilient. While investors could become more cautious, historical evidence shows that sell-offs usually occur prior to the shutdown and do not lead to prolonged declines. While prolonged disruptions could increase economic risk with declining consumer activity and confidence, most analysts anticipate a partial rebound once government operations normalize and employee pay is restored.
Inflation: The September US Consumer Price Index (CPI) came in aligned with expectations and was the only major economic data release since the prolonged government shutdown. The headline CPI rose 0.3% monthly and 3.0% year-over-year in September, while the Core CPI (excluding food and energy) gained 0.2% over the month, which lowed the annual rate from 3.1% to 3.0%. Energy prices climbed 1.5% from August to September, driven by higher retail gasoline prices. Food prices also continued to rise, with grocery costs up 0.3%, maintaining a 2.7% annual increase. Although used-car prices declined, we don’t believe the trends to continue into later 2025 and early 2026, as new vehicle models are expected to be introduced this fall, providing an opportunity for auto manufacturers to pass along tariff-related higher costs to consumers.
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As of 10/31/25. Data provided by Bloomberg, NorthCoast Asset Management, Federal Reserve History.
The NorthCoast Navigator is a market barometer displaying NorthCoast's current U.S. and international equity exposure and outlook. This aggregate metric is determined by multiple data points across four broad market-moving dimensions: Technical, Sentiment, Macroeconomic, and Valuation. The daily result determines equity exposure in our tactical strategies.
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