Market Note: Earnings Momentum and Dovish Fed

By Hightower Great Lakes on October 20, 2025

Fed Shifts Dovish

Federal Reserve Chair Jerome Powell struck a notably dovish tone, signaling that the central bank could cut rates twice before year-end and may soon end quantitative tightening (QT).

This marks a meaningful policy shift toward easing, aimed not at addressing economic weakness, but at recalibrating policy amid evidence that conditions have become too restrictive. With GDPNow estimates at a healthy 3.9%, the move reflects confidence in the economy’s underlying strength rather than concern over a downturn.

Lower interest rates and an end to QT are powerful stimulants for growth, as they increase liquidity, reduce borrowing costs, and encourage both consumer spending and business investment.

Importantly, this easing cycle is not driven by panic or negative data, but by recognition that policy has become too restrictive relative to improving inflation and labor market trends. The result is a supportive backdrop for continued economic and market strength heading into year-end.

Strong Bank Earnings and Credit

The Big Six banks Morgan Stanley, Wells Fargo, Bank of America, JPMorganChase, Citigroup, and Goldman Sachs all delivered stronger-than-expected third-quarter results, beating estimates on both earnings and revenue. Overall guidance for Q4 and 2026 was revised higher, reflecting confidence in continued economic resilience and solid credit conditions.

Net interest income came in largely in line with expectations, while double-digit fee growth across capital markets and investment banking highlighted a resurgence in deal activity. Morgan Stanley and Bank of America led the pack in investment banking strength, posting revenue increases of 44% and 43% year-over-year, respectively.[1]

On the credit front, consumer health remains robust. Provisions for loan losses declined at several banks, underscoring improving credit quality and prudent underwriting standards. Delinquency rates remain well-contained, with JPMorganChase at 2.14%,[2] Wells Fargo at 2.69%,[3] and Citigroup at 2.12%,[4] which are all consistent with pre-pandemic averages.

While regional banks such as Zions Bancorporation reported isolated credit issues, including a $50 million charge-off tied to a fraudulent loan underwritten by a subsidiary, these could appear to be one-off events rather than systemic concerns.

The strength in credit performance, combined with ongoing market share gains by the major banks, reinforces confidence in both the consumer and the broader financial system heading into year-end.

Opportunity in Volatility

Periods of volatility often present some of the best opportunities for long-term investors to strengthen their portfolios. Rather than retreating, this is a time to upgrade holdings while rotating into market leaders that may have previously seemed too expensive to own.

While the broader market remains elevated at roughly 23x forward earnings, select sectors continue to trade at attractive valuations. Banks are still reasonably priced around 14x, housing stocks trade near 10x, and discretionary names hover around 13–14x.

Investors can take advantage of these pockets of value while maintaining exposure to high-growth areas such as technology, artificial intelligence, data centers, power infrastructure, and cybersecurity, sectors that continue to deliver strong performance even amid broader market uncertainty.

Upcoming

This week marks a pivotal stretch for markets, with roughly 17% of S&P 500 companies set to report earnings. This influx of results offers investors valuable real-time insight directly from management teams which is an important perspective when macroeconomic signals appear uncertain and market volatility rises.

Upcoming reports from General Electric (GE), Coca-Cola (KO), Las Vegas Sands Corp (LVS), Deckers Outdoor Corp (DECK), International Business Machines (IBM), Tesla (TSLA), Netflix (NFLX), and Procter & Gamble (PG)) will provide a broad view of business conditions not only in the U.S. but internationally.

With the fourth quarter historically a seasonally strong period for equities, investors can use current volatility as an opportunity to selectively add to positions. With nearly $7 trillion of cash still sitting on the sidelines, the potential for capital rotation back into equities remains significant as earnings clarity improves.

Fixed Income. U.S. Treasury yields declined across the curve last week, reflecting softer economic data and renewed trade-related uncertainty that contributed to a more cautious market tone. By the end of the week, the 2-, 10-, and 30-year yields had decreased by 4, 2, and 1 basis points, respectively.[5]

Looking ahead, this week’s full economic calendar has the potential to influence near-term rate trajectories and shape expectations for Federal Reserve policy. Key releases include MBA mortgage applications, weekly jobless claims, new and existing home sales, and the Consumer Price Index (CPI) where market participants will be closing monitoring the signs of continued moderation in inflation.

Corporate credit spreads tightened across both investment-grade and high-yield last week, supported by a rebound in risk appetite and favorable rate moves. Investment-grade spreads tightened 5 basis points to +117, while high-yield spreads narrowed 18 basis points to +352.[6]

U.S. credit quality continued to improve for the seventh consecutive week, with the main rating agencies reporting 31 upgrades versus 29 downgrades. The Financial sector led in upgrades, whereas Consumer Discretionary saw the highest number of downgrades.

In the municipal market, tax-exempt yields were mixed across the curve. Short-term yields rose by 4–5 basis points, while intermediate and long-term yields declined by 2–9 basis points. This week’s projected tax-exempt issuance stands at approximately $13.7 billion, which would mark the sixth-largest issuance week of the year.

Return for Selected Indices[7]

Click here to read last week’s Market Note (10/13).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Bloomberg: As of October 2025

[2] JPMorgan Chase Earnings Supplement: As of October 2025

[3] Wells Fargo Quarterly Supplement: As of October 2025

[4] Citigroup Financial Supplement: As of October 2025

[5] Bloomberg: As of October 2025

[6] Bloomberg: As of October 2025

[7] Source: Bloomberg. As of October 20, 2025.