Weekly Market Update: October 27, 2025

The U.S. economy is exceeding prognostications. True, the gross domestic product (GDP) expanded by an estimated annualized rate of 1.6% during the first six months of this year, which was well below the 2024 full-year rate of 2.8%. However, the presumed negative impact of expanded tariffs on prices and the overall health of the economy has yet to materialize in a meaningful way. The current consensus calls for an annualized GDP advance north of 3.0% in the September quarter. (The first reading on third-quarter GDP will likely be delayed due to the federal government shutdown.) 

Corporate America is painting a similar picture. Third-quarter earnings season is off to a strong start, with the big money center banks and a number of industrial companies reporting healthy results. Too, the expectation coming into the season was that the technology companies would again exceed forecasts, aided by spending on artificial intelligence (AI) and cloud-based platforms. Not surprisingly, the earnings growth forecast for the S&P 500 companies continues to tick higher. There also is a growing consensus on Wall Street that double-digit profit growth is plausible in 2026, given favorable corporate tax policies and regulation rollbacks. 

The inflation situation may be better than most think. As noted, the impact of tariffs on prices seems to be rather benign so far. Another positive development is the recent drop in oil and gas prices ahead of the winter heating season, aided by increased production both here and overseas. This makes it less expensive for companies to operate their businesses and for consumers to run their households. 

Meantime, the price of gold is up notably, year to date. Historically, such a move would suggest Wall Street is worried about inflation or a slowing economy. However, a good deal of the appreciation is likely due to China buying up the precious metal to diversify its foreign exchange reserves away from the U.S. dollar and reduce reliance on the greenback amid the global trade tensions. 

Conclusion: With the Federal Reserve cutting interest rates and corporate earnings exceeding expectations, the catalysts are in place for a late-year stock market rally. Given this backdrop, a portfolio consisting mostly of high-quality equities is reasonable. 

Source: ValueLine.